Clustering Illusion
What is Clustering Illusion? Clustering illusion refers to a cognitive bias in behavioral finance in which an investor observes patterns in what are actually random events. In other words, clustering illusion bias is the bias that arises from seeing a trend in random events that occur in clusters that are actually random events. The clustering...
Vickrey Auction
What is a Vickrey Auction? A Vickrey auction is a sealed-bid auction where bidders submit bids without knowing the bids of other people. However, as opposed to other sealed-bid auctions, the price paid is the second-highest bid price and not the winning bid price. The Vickrey auction was named after William Vickrey, a Canadian who...
Operating Risk
What is Operating Risk? Operating risk is the risk related to a company’s cost structure. More specifically, it is the risk the company faces due to the level of fixed costs in its operations. Together with sales risk, operating risk is one of the two components of business risk. Operating Risk as a Component of Business...
Narrow Money
What is Narrow Money? Narrow money is a way of measuring and categorizing the money supply within an economy. It includes specific kinds of money that are highly liquid. Due to its liquidity, it is easily accessible and can be used for immediate spending. Some examples include cash or checkable deposits. It is important to...
Neutrality of Money Theory: Definition, History, and Critique
A staple in classical economics, the neutrality of money theory suggests that changes in the supply of money within an economy only affect nominal economic variables such as exchange rates, wages, and the prices of goods and services. Changes in the money supply do not affect real economic variables, such as consumption, employment, and real...
