Adrienne is an investor who observes two quarters of per- formance by Bernice, a mutual-fund manager....
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Adrienne is an investor who observes two quarters of per- formance by Bernice, a mutual-fund manager. Each quarter Bernice has probability p of beating the market and probability 1-p of failing to beat the market. The probability p is either 0, 1/2 or 1, depending on whether Bernice is, respectively, a bad, mediocre or good fund manager. Bernice's performance is independent from one quarter to the next. Hence, Bernice's performance can be correctly modelled as draws with replacement from an urn with 2 balls, where a proportion p of the balls correspond to good perfor- mance and a proportion 1-p of the balls correspond to bad performance. Adrienne, however, incorrectly 'thinks' the balls are being drawn without replacement. (a) (5 points) Identify which heuristic this model is intended to capture, and describe this heuristic in one sentence. (b) (5 points) Suppose for now that Adrienne knows for sure that p = 1/2 (that is, Bernice is a mediocre fund manager) and she has just observed one good quarter's performance by Bernice. What is her prediction about Bernice's performance in the next quarter? Explain your answer. (c) (10 points) Suppose now that Adrienne doesn't know p, except that it can be either 0, 1/2 or 1 and it is equally likely to be any one of those three values. What does she conclude if she sees: (i) two good performances by Bernice? (ii) two bad performances by Ber- nice? (iii) one good and one bad quarter of performance? Are these conclusions correct? Explain the reasoning behind your answer and how the prediction of this model in (i) is related to the hot-hand fallacy in basketball. Adrienne is an investor who observes two quarters of per- formance by Bernice, a mutual-fund manager. Each quarter Bernice has probability p of beating the market and probability 1-p of failing to beat the market. The probability p is either 0, 1/2 or 1, depending on whether Bernice is, respectively, a bad, mediocre or good fund manager. Bernice's performance is independent from one quarter to the next. Hence, Bernice's performance can be correctly modelled as draws with replacement from an urn with 2 balls, where a proportion p of the balls correspond to good perfor- mance and a proportion 1-p of the balls correspond to bad performance. Adrienne, however, incorrectly 'thinks' the balls are being drawn without replacement. (a) (5 points) Identify which heuristic this model is intended to capture, and describe this heuristic in one sentence. (b) (5 points) Suppose for now that Adrienne knows for sure that p = 1/2 (that is, Bernice is a mediocre fund manager) and she has just observed one good quarter's performance by Bernice. What is her prediction about Bernice's performance in the next quarter? Explain your answer. (c) (10 points) Suppose now that Adrienne doesn't know p, except that it can be either 0, 1/2 or 1 and it is equally likely to be any one of those three values. What does she conclude if she sees: (i) two good performances by Bernice? (ii) two bad performances by Ber- nice? (iii) one good and one bad quarter of performance? Are these conclusions correct? Explain the reasoning behind your answer and how the prediction of this model in (i) is related to the hot-hand fallacy in basketball.
Expert Answer:
Answer rating: 100% (QA)
a Heuristic The model captures the representativeness heuristic This heuristic suggests that people ... View the full answer
Related Book For
Auditing a business risk appraoch
ISBN: 978-0324375589
6th Edition
Authors: larry e. rittenberg, bradley j. schwieger, karla m. johnston
Posted Date:
Students also viewed these economics questions
-
Company History. Wawa Wild Wings, (WWW) was formed in 1980 by 3 residents of the town of Wawa Ontario, located about 230 kilometers north of Sault Ste. Marie Ontario. The 3 equal partners are Cosmo...
-
Let A, B be sets. Define: (a) the Cartesian product (A B) (b) the set of relations R between A and B (c) the identity relation A on the set A [3 marks] Suppose S, T are relations between A and B, and...
-
Let U=(1,2,3,4,5,6,7,8,9,10,11,12,13,14), M=(2,4,5,6,7), and N={9,10,11,12,13,14,15). Find MON. MON (Use ascending order. Use a comma to separate answers as needed.) =
-
In a recent newspaper article, the president of Altas Company asserted that something has to be done about depreciation. The president said, "Depreciation does not come close to accumulating the cash...
-
Find the probability that a piece of data picked at random from a normal population will have a standard score (z) that lies between the following pairs of z-values: a. to z = - 2.75 z = -1.38 b. to...
-
Let \(S\) be given by (10.4.2). Give the dynamics of \(S^{k}\). \[\begin{equation*} S_{t}=S_{0} \exp \left[\left(b-\phi \lambda-\frac{\sigma^{2}}{2} ight) t+\sigma W_{t}+[\ln (1+\phi)] N_{t}...
-
After several years of operations, the partnership of Nelson, Pope, and Williams is to be liquidated. After making closing entries on March 31, 20--, the following accounts remain open: The noncash...
-
explain accountability, accounting, and the accountability model briefly explain organisational boundaries in the context of accountability and accounting; explain and apply the four parts of the...
-
In 2017, Bayking Company sold used equipment for $17,000. The equipment had an original cost of $80,000 and accumulated depreciation as of the date of sale was $60,000. BayKing also purchased...
-
The application will allow the user to calculate the cricket player's points as per following specifications. Page 1 of 4
-
What would be the following output using Java? Activity 1. Implement the hierarchy of classes shown in the UML diagram below: Person -id: int Employee -position: String -salary: double +Employee()...
-
Help me to understand with this Java Ethereum Blocks A blockchain is a database of transactions that is updated and shared across many computers in a network. Every time a new set of transactions is...
-
this code is in java please use IntelliJ IDEA. thank you very much. ill like if it works!! Part 2: BankAccount [4 points] Problem Description: Write a program to perform the following Bank...
-
Create Java Project named MultipleQueueProject in order to implement a new data structure called MultipleQueueClass for maintaining two queues A and B at the same time (in case you have two counter...
-
According of law of Laplace, if the radius of alveolar increase so what : of the following is correct Collapsing pressure will decrease and surface tension will increase Collapsing pressure will...
-
Assume today is the 21st of February. Using the information below, FT Extract, answer the following questions (parts i and ii). You work for a US company that is due to receive 250 million in June...
-
How do assurance services differ from audit services? What are the primary drivers of the need for assurance services? Does a market for assurance services already exist or do auditors need to...
-
What are the audit steps associated with assessing the risk of material misstatement for the revenue cycle?
-
Audit committees are mandatory for all public companies. The AICPA and IIA have endorsed the formation of audit committees (or their equivalent) for most organizations, including governmental...
-
In what way is Earth like a hard-boiled egg?
-
Describe evidence from the rock record that supports continental drift.
-
Why was the hypothesis of continental drift dismissed by scientists for decades?
Study smarter with the SolutionInn App