Question 1
A) Assume that in Never-Ever land 2 types of borrowers participate in the market, green and blue. There is one P2P lending Crowdfunding platform that operates in Never-Ever land. On average the green borrowers receive better borrowing terms than the blue borrowers. Does this necessarily imply that the market is not rational? Does this imply that the market is rational? Explain.
B) The government of Never-Ever would like to promote long term savings among the citizens. Based on class material, provide at least 2 suggestions that will increase the level of personal savings. What biases do these solutions overcome?
C) Assume that in Never-Ever land two paintings by famous artist with identical characteristics were put up for sale. However, one of the paintings had previously been sold in a "hot" market for a high price and the other had been sold in a "cold" market for a low price. If the market is rational, would the painting that previously sold in the "hot" market necessarily fetch a higher price at the auction? What biases that were discussed in class may cause the painting that previously sold in the "hot" market indeed to be sold at a higher price at the auction?