Rational Ignorance Helps Explain Why

question 99

Multiple Choice

Rational ignorance helps explain why

• A)legislators often trade votes on key issues to produce positive-sum games between them
• B)legislators usually disregard the desires of those constituencies that cannot influence their chances for reelection
• C)voters spend considerable time and effort to gather information to protect themselves against legislators with hidden agendas
• D)it is rational for legislators to ignore the wishes and desires of all of their constituents
• E)voters may choose to remain ignorant of issues when there are large costs associated with becoming informed

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Definitions:

Nondiversifiable Risk

Risk that cannot be eliminated by investing in many projects or by holding the stocks of many companies.

Diversifiable Risk

Risk that can be eliminated either by investing in many projects or by holding the stocks of many companies.

Expected Return

Expected return is the anticipated profit or loss from an investment, factoring in all possible outcomes weighted by their probabilities.

Asset Beta

A constant that measures the sensitivity of an asset’s return to market movements and, therefore, the asset’s nondiversifiable risk.