#13 - Global Reference, Must Be True

[Administrator]

Complete Question Explanation

The correct answer choice is (B).

Answer choice (A):

Answer choice (B): This is the correct answer choice.

Answer choice (C):

Answer choice (D):

Answer choice (E):

This explanation is still in progress. Please post any questions below!

[mkarimi73]

Could I have an explanation as to why (C) can be safely removed? Thanks.

[Rachael Wilkenfeld]

Hi mkarimi73,

According to Passage A, the fact that it was short-lived did not matter. We would expect mistruths to be quickly and accurately dispelled. The market quickly adjusts to what the informed people know. The informed people would know that there is manipulation happening and would make expected adjustments as they did in this scenario. That means that the scenario supports Passage A, and does so as described in answer choice (B).

Hope that helps!

[ashpine17]

My gut was telling me that this scenario supported passage a since it showed that the market was self-regulating but the issue I had with B was that the information was only among people who were well-informed, not others. so I dont understand how this is supposed to support B.

[Robert Carroll]

ashpine17,

The first sentence of the third paragraph of passage A talks about exactly such a situation. Well-informed people have the knowledge and that knowledge is spread throughout the entire market by their actions. That's what we have in answer choice (B).

Robert Carroll

[CristinaCP]

Hi Powerscore,

For A, I understand that the hypothetical isn't even showing the broad generalization contracts for an initially unpopular candidate cannot have a sustained increase in value; it's only showing that one example of market manipulation did not work because well-informed people can influence the market. But can we also eliminate A because Passage A doesn't even make the point that "contracts for an initially unpopular candidate cannot have a sustained increase in value?" I don't see how it could support Passage A for that reason if Passage A never makes the point, so that's part of the reason why I eliminated it.

[Luke Haqq]

Hi CristinaCP!

You comment,

But can we also eliminate A because Passage A doesn't even make the point that "contracts for an initially unpopular candidate cannot have a sustained increase in value?"

Yes, your reasoning provides good reasons for eliminating answer choice (A). You're right to note that Passage A never really makes a point to this end. There's nothing in that passage that implies that an unpopular candidate cannot have a sustained increase in value.

[jona_zx]

For B, what is the support that informed people quickly disseminated accurate information? If it had said that the selling by the informed led to the selling by many others, I could see that, but B sounds more like it was only the informed that sold and made all the profit.

[Jeff Wren]

Hi jona,

In this question, the "accurate information" refers to the actual market estimate of candidate X winning, which is very low since this candidate is a long-shot.

When several investors invest large sums of money on candidate X, they are basically trying to "trick" the market into believing that candidate X is suddenly a better candidate. Since the well-informed traders know that candidate X is a long-shot, they sell their contracts for candidate X for a profit. This buying/selling pattern is what then informs the rest of the market that candidate X is still a long-shot (the accurate information).

Even though the well-informed traders were the ones who made the profit, that's not really what this question means by disseminating the accurate information. The idea is that the "inaccurate information" (that candidate X may be more likely to win than previously thought based on the new investments for this candidate) is quickly exposed/corrected by the well-informed investors through their selling behavior. The market quickly reacts to this buying/selling pattern and "updates" the market value of candidate X to the more accurate estimate of the candidate's chance of winning (rather than the artificial "blip" caused by the large investments).

The scenario presented in this question basically parallels the experiment that is described in paragraph three of Passage A. This paragraph begins "Markets are highly 'efficient,' in the sense that the market as a whole learns—lightning fast and very accurately— what informed people know." The experiment that follows in that paragraph and the situation described in this question both show how the market quickly learns the "truth" that the well-informed people know.