A Positional Externality

question 167

Multiple Choice

A positional externality:

• A)only occurs in sports.
• B)arises in situations in which rewards depend on absolute performance.
• C)results in under investment in performance enhancement.
• D)arises in situations in which rewards depend on relative performance.

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Definitions:

Risky Stock

Stocks with a high degree of risk, typically characterized by high volatility and potential for significant loss or gain.

Mean Distribution

A statistical term describing the central tendency of a probability distribution, often interpreted as the average of a set of values.

Portfolio Theory

A framework for constructing a portfolio of assets aimed at maximizing return for a given level of risk.

Business-Specific Risk

Variation in the return on a stock investment caused by things that affect specific businesses or industries.