task 2

Project Description:

offer $20-$25
this one no rush due in 5 days.

due next wednesday.
case study 2: the (ir) rational consumer and the great bust


think about the recent bust in the housing market. prices rose at rates that defied reason, yet people continued to buy houses. banks continued to invest heavily into home loan derivatives, even though they knew the mortgage bundles were becoming more risky. some lonely voices tried to warn their coworkers, but they were not heard. when the bubble finally burst, some of the most surprised people worked on wall street. in the end, the few dissenters walked away from the mortgage crises much richer because they bet on a bust.

read economics in action: “the great housing bubble” on pg. 734 and watch the video about the irrational things people do. click the following link for the video: http://www.youtube.com/watch?v=jlax0xwhavm

answer the following questions in essay form. tie together the information from the video and what you know about the irrational way the market worked right before the housing bubble burst.

what indications occurred in the 2000 – 2006 housing market that a bubble bust was eminent?
explain the concepts of loss aversion, value attribution, and group dynamics.
an economic principle is that markets will act in rational ways. given the rise and bust of the housing bubble, do you agree or disagree that consumers act rationally? explain why or why not.
for each concept about how consumers act irrationally, explain how it might have affected the thinking of buyers, lenders, and investors as housing prices were raising. give clear examples about how people acted and the motivations that caused them to act that way.
describe a consumer decision you made recently that was irrational?
which of the ‘ irrational’ thought patterns formed the basis for your decision?
what steps can you take to avoid making irrational financial and/or consumption decisions in the future?

length suggestion: 1-2 pages. be sure to follow apa format.
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