If Money Earns 7

question 247

Short Answer

If money earns 7.5%, calculate and compare the economic value today of the following payment streams:
a) Payments of $1,800 and $2,800 made 150 and 90 days ago, respectively.
b) Payments of $1,600, $1,200, and $2,000 due 30, 75, and 120 days from now, respectively.

Comprehend the role of credit histories in identifying high-risk parties.

Identify the causes of lower prices for used goods in markets with information asymmetry.

Understand the role of group health insurance in changing insurance pool characteristics.

Recognize the lemons problem and its effects on market dynamics.

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Definitions:

Heuristics

Simple, efficient rules, either hard-coded by evolutionary processes or learned, which help in making decisions, forming judgments, or solving problems.

Error-Free Decisions

Decisions made without mistakes, achieved through careful analysis, planning, and consideration of all relevant information.

Recognition Heuristics

A cognitive shortcut where a decision is made based on the recognition or familiarity of an option rather than on a detailed comparison or analysis.

Hardwired Heuristics

Innate or instinctual mental shortcuts that humans use to make decisions or solve problems efficiently.