If Asked,"Which Is More Probable? A

question 219

Multiple Choice

If asked,"Which is more probable? A.Number one ranked golfer Luke Donald will not be in the lead after the first round of golf of a tournament but will win the tournament.B.Number one ranked golfer Luke Donald will not be in the lead after the first round of golf of a tournament." Most people would answer A,although A is less likely to be true than B.According to Tversky and Kahneman,such faulty conclusions are based on

• A) the representativeness heuristic.
• B) convergent thinking.
• C) divergent thinking.
• D) the framing effect.

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Definitions:

Forward Contract

A financial agreement between two parties to buy or sell an asset at a specified future time at a price agreed upon today.

Forward Rate

The interest rate agreed upon now for a loan to be made or currency to be delivered at a future date, used in forward contracts and currency exchange.

Future Spot Rate

The anticipated exchange rate at which one currency will be exchanged for another in the spot market at a future date.

Cash Flow Hedge

A risk management technique used by companies to protect against the risk associated with fluctuations in cash flows, typically related to future interest or currency exchange rates.