ProblemSet1
Econ 138: Financial and Behavioral Economics
Problem Set #1
Due Date: February 5, 2015
• Please submit the homework before the class starts. Late homework will not be accepted. • Please put your name, student ID & your GSI’s name at the up right corner of the front page.
• Please staple the pages of your homework together.
• Homework will be returned in sections.
1. According to the World Bank’s Mind, Society, and Behavior, which two economists are associated with the removal of psychological factors from economics generally and from “making predictions about market outcomes” in particular?
2. Referring to Figure O.4 in the World Bank’s Mind, Society, and Behavior:
(a) What is the free rider problem? (Note: you may want to refer back to your microeconomics text for a refresh on this concept. Also, in answering a definitional question like this it can be useful to quote a source (include the appropriate citation) and then briefly elaborate the quote in your own words.)
(b) According to standard economic theory, what percent of the population should be free riders?
(c) Use Granovetter’s discussion of norms and network density to rank order (from most to least) the social-network density of the countries shown in the Figure.
Explain the basis for your ranking.
3. With a focus on the concepts introduced in Granovetter (2005), write a brief (1-page) essay comparing his discussion of the Fur of Sudan and Arab merchants with the description in TechCrunch1 of the tech-funding needs in London and the arrival of
Silicon Valley Bank.
1
http://techcrunch.com/2012/06/11/silicon-valley-bank-launches-in-london-to-bridge-the-tech-fundinggap/
1
4. The goal of this exercise is to reproduce the results shown on slide 18 of lecture 3. On
Yahoo Finance (http://finance.yahoo.com/) look up the SPDR S&P 500 ETF (ticker symbol SPY) and download all the daily price data.2
(a) Calculate the returns using the closing prices for τ of one day, one week, one month, one quarter, semi annual,
Problem Set #1
Due Date: February 5, 2015
• Please submit the homework before the class starts. Late homework will not be accepted. • Please put your name, student ID & your GSI’s name at the up right corner of the front page.
• Please staple the pages of your homework together.
• Homework will be returned in sections.
1. According to the World Bank’s Mind, Society, and Behavior, which two economists are associated with the removal of psychological factors from economics generally and from “making predictions about market outcomes” in particular?
2. Referring to Figure O.4 in the World Bank’s Mind, Society, and Behavior:
(a) What is the free rider problem? (Note: you may want to refer back to your microeconomics text for a refresh on this concept. Also, in answering a definitional question like this it can be useful to quote a source (include the appropriate citation) and then briefly elaborate the quote in your own words.)
(b) According to standard economic theory, what percent of the population should be free riders?
(c) Use Granovetter’s discussion of norms and network density to rank order (from most to least) the social-network density of the countries shown in the Figure.
Explain the basis for your ranking.
3. With a focus on the concepts introduced in Granovetter (2005), write a brief (1-page) essay comparing his discussion of the Fur of Sudan and Arab merchants with the description in TechCrunch1 of the tech-funding needs in London and the arrival of
Silicon Valley Bank.
1
http://techcrunch.com/2012/06/11/silicon-valley-bank-launches-in-london-to-bridge-the-tech-fundinggap/
1
4. The goal of this exercise is to reproduce the results shown on slide 18 of lecture 3. On
Yahoo Finance (http://finance.yahoo.com/) look up the SPDR S&P 500 ETF (ticker symbol SPY) and download all the daily price data.2
(a) Calculate the returns using the closing prices for τ of one day, one week, one month, one quarter, semi annual,