05/12/2020 Test 2- Behavioural Economics
Test 2- Behavioural Economics
Answer all questions.
There won't be any partial marking.
You are required to submit the snap of rough work (whatever little you do), so use proper blank sheets for it and do it properly.
After 30 minutes, you will be given 10 minutes to scan your rough work, and email it to dushyant@hyderabad.bits-pilani.ac.in
Name of the rough work- your id no.pdf, subject of the email- test 1-rough work.
We won't be evaluating your google form responses in the absence of rough work receipt.
In case of suspicion of copying and plagiarism (upon comparing rough works), we will look for alternative mechanisms of evaluations like
viva and other modes. However to stress, merely doing the sums in the rough work does not entitle one for marks; google form responses
are necessary (but not sufficient) for marks awarding.
Weightage- 15 %, Total Marks- 30
Max Duration- 30 Minutes
Make sure to submit before time, the submission will disabled in exactly 30 minutes. After this no request for submission will be
entertained.
* Required
1. Email address *
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05/12/2020 Test 2- Behavioural Economics
2. Consider the lottery L = (15,0.2; 0,0.8) that captures the risky returns associated with a financial decision. The utility 3 points
function of the decision maker satisfies u(0) = 0. The individual uses RDU to evaluate lotteries and has the
probability weighting function w(p) =p^3 . Relative to a decision maker who follows expected utility (EU), is this
decision maker optimistic or pessimistic?
Mark only one oval.
optimistic
pessimistic
can't say, not enough information given
3. Name *
4. ID number *
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05/12/2020 Test 2- Behavioural Economics
5. A fair dice is rolled, you are going to get Rs. 400 if it shows an even number. If it turns out to be an odd number, you 4 points
get nothing. Suppose you are an expected value maximiser. What is the maximum amount that you will be willing to
pay to play this game?
Mark only one oval.
100
200
300
400
6. Consider the rank dependent utility framework. Assume the probability weight function to be w(p) = p^2. Consider 4 points
the lottery L = (-500,0.2; -250, 0.3; 0, 0.1; 500, 0.4). Derive the decision weight corresponding to the outcome
-250?
Mark only one oval.
0.04
0.21
0.39
0.29
0.31
none of the options given here
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05/12/2020 Test 2- Behavioural Economics
7. Consider the following game- a fair coin is tossed repeatedly in independent trials until a head comes up. If a head 4 points
comes up on the nth toss, then the payoff from this gamble is e^(2^n) . Consider an individual with utility function ln
(m), where m is the amount of money won. If this individual is an expected utility maximiser, what will be the
maximum amount that he will be willing to pay as an entry fee to play this game?
Mark only one oval.
some finite positive amount
infinity
can't say
8. Consider the prospect theory framework. Assume the probability weight function to be w(p) = p^2. Consider the 4 points
lottery L = (-500,0.2; -250, 0.3; 0, 0.1; 500, 0.4). Derive the decision weight corresponding to the outcome -250?
Mark only one oval.
0.04
0.21
0.31
0.29
0.39
none of the given options
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05/12/2020 Test 2- Behavioural Economics
9. Suppose a fair coin is tossed- if it comes up to be head, you get Rs. 500; if it is tail, you get Rs. 1000. Consider the 3 points
prospect theory framework, lets assume probability weight function to be simply w(p) = p, the reference point to
be Rs. 500. The value function is v(x) = x if x is greater than or equal to zero, v(x) = 2x if x is strictly less than zero.
What is the certainty equivalent of this lottery if you follow the prospect theory approach?
Mark only one oval.
500
250
750
700
200
none of the option given here.
10. In the prospect theory, the decision weights depend on which of the following factors? Multiple choices can be 4 points
correct, marks will be awarded only when all correct answers are marked- no partial marking.
Check all that apply.
objective probabilities
rank of the outcome
magnitude of the outcome
interaction of probabilities and the stake size
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05/12/2020 Test 2- Behavioural Economics
11. Consider the prospect theory framework. Assume the probability weight function to be w(p) = p^2. Consider the 4 points
lottery L = (-500,0.3; -250, 0.3; 0, 0.1; 500, 0.3). In the domain of loss, this individual is
Mark only one oval.
optimist
pessimist
can't say
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