Question 1

Neumann and Oskar Morgenstern (1944) advocated an approach that leads to a formal mathematical representation of maximization of _____.

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Question 2

A kind of information asymmetry lies in the hidden action, wherein one party's actions are not observable by the counterparty to the contract.Economists study this issue as one of _____.

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Question 3

Optimal capital structure is a company's optimal mix of debt and _____ financing.

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Question 4

Economists say that the value function is risk seeking in _____ and risk averse in _____.

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Question 5

The premium over and above the AFP that a risk-averse person is willing to pay to get rid of the risk is called the _____.

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Question 6

To compute a probability empirically, we repeat an experiment with uncertain outcomes.This experiment is called a(n) _____ experiment.

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Question 7

Daniel Kahneman and Amos Tversky (1974) were the first to provide evidence that _____ theory doesn't provide a complete description of how people actually decide under uncertain conditions.

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Question 8

_____ refers to money spent that cannot be recovered.

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Question 9

A risk-averse person will always hedge the risk completely at a cost that equals the expected loss.This cost is the _____.

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Question 10

Humans tend to give more weight to events of the recent past than to look at the entire history.We could attribute such a bias to limited memory, individuals' myopic view, or just availability of more recent information.We call this bias a(n) _____ bias.

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Quiz 3: Risk Attitudes: Expected Utility Theory and Demand for Hedging