PT157.S4.P2.Q14 > Analytics

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Passage A.

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Intro to Topic · Markets Good

Markets efficiently distill the collective wisdom; they require buy in; they reward being right.

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Markets for Forecasting · Performs better than 75% of polls

The Iowa Electronic Markets can forecast election results. Buyers and sellers can trade on their bets of which candidate is more likely to win.

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Markets are Efficient · Information spreads very quickly

Experiment that demonstrated how quickly "inside knowledge" can spread in the market via price as a signaling mechanism.

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Intro to Topic · Markets are not perfect

Sounds like a disagreement with Passage A's position...

Example · Iowa Electronic Markets

The Iowa Electronic Markets didn't get a recent election result right until a few days before the election.

Analogy · Markets are like racetracks

You make bets based on what you expect the payoff to be

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What do "prediction markets" actually do? · Reflect majority opinion

They are not omniscient. They are a better version of polls that generates more serious responses.

Passage Style

14.

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Question Type

Analogy (RC)

This question is about the relationship between both passages, so we’ll need to read both before answering. Author A says markets handle the knowledge of their participants by disseminating the knowledge of the most informed people and thereby raising everyone’s else’s knowledge to match. Author B says that they don’t help to inform anyone; they just reflect the knowledge of the majority, whatever that happens to be.

a typewriter and █ ████ █████████

These are two different ways of capturing the same written information. They’re two alternatives for doing the same thing. This might be a good analogy if author A and author B both thought markets accomplished the same thing, just in slightly different ways. But author A and author B think markets do fundamentally different things. Author A thinks they handle knowledge by homing in on the most accurate information and disseminating that to everyone. Author B thinks they handle knowledge by just reflecting what the majority already thinks.

12%

a thermostat and █ ███████████

A thermostat sets the temperature to a certain point. This is similar to how, according to passage A, markets handle the knowledge of their participants by disseminating the knowledge of the most informed people and thereby raising everyone’s else’s knowledge to match. Markets effectively “set” the knowledge of its participants to a certain level.

A thermometer just reflects whatever the temperature happens to be. This is similar to how, according to passage B, markets just reflect the knowledge of the majority, whatever that happens to be.

48%

a bicycle and █ ██████████

A motorcycle is a faster or more powerful version of a bicycle. But author B doesn’t argue that markets handle the knowledge of their participants in a faster or more powerful way than what author A argues. In fact, quite the opposite; author A says markets are quick and efficient at disseminating reliable information, while author B says markets don’t necessarily disseminate reliable knowledge at all.

a news broadcast ███ █ ████████

A news broadcast is a more formal way to disseminate information than a magazine. But both disseminate information from a select few (the news broadcaster or magazine publisher) to the many. Author B doesn’t think markets disseminate information from the few to the many. She thinks markets just reflect popular opinion. (D) might be more analogous if it said something like, “a news broadcast and a social media platform.”

28%

a digital camera ███ █ ██████ ████ ████ ████

These are two different ways of capturing the same visual information. They’re two alternatives for doing the same thing. This might be a good analogy if author A and author B both thought markets accomplished the same thing, just in slightly different ways. But author A and author B think markets do fundamentally different things. Author A thinks they handle knowledge by homing in on the most accurate information and disseminating that to everyone. Author B thinks they handle knowledge by just reflecting what the majority already thinks.

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PrepTest 157 - Section 4 - Passage 2 - Question 14

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PrepTest 157 - Section 4 - Passage 2 - Question 14

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