casts. Meg Whitman, eBay's CEO, stated that future earnings would be lower because of higher advertising costs and reinvestment. In response, eBay's stock price fell from $103 to $81 per share. The firm's market value fell to $56 billion. Many analysts immediately downgraded eBay's stock. Rajiv Dutta, eBay's CFO, issued a public statement to say that his concern was managing eBay's long run prospects, not its stock price. On January 26, 2005, James Stewart wrote about eBay in his Wall Street Journal column 'Common Sense." Stewart indicated that he would consider purchasing eBay stock in the wake of its decline. While acknowledging that eBay could not grow at a stratospheric rate forever, Stewart noted that eBay is in the process of transforming world commerce and has a natural monopoly. Were he to own just one Internet stock, Stewart said, eBay would be that stock. Questions 1. Discuss whether the analysts following Intel appear to have been influenced by any psychological phenomena, both generally and in their reaction to Intel's an- nouncement in September 2000. 2. Discuss whether James Stewart's assessment of eBay reflects any psychological phenomena. 3. In what ways are the events described at Intel and eBay similar and in what ways are they different? Note: Points will be taken off for write-ups that lack organization and order. Maximum pages: 3 pages, double-space, size 12; Grade: 30 QUESTION 3. Bias Identification, please identify the biases and/or heuristics displayed by Professor French 1. Professor French tells you that South Africa's stock market undervalued and sug- gests that it is a good investment. You discover that South Africa is about to im- pose a new tax on security transactions, which will results in lower liquidity. The next class you bring this to Professor French's attention. Simultaneously, another student mentions that as commodity prices recover South Africa's stock market will rise sharply. Dr. French ignores the information you provide and congratu- lates the other student on excellent research. Which type of bias is Professor French displaying? Explain briefly. 2. While reviewing the most recent four quarters of earnings estimates for MMM, Professor French notices that earnings growth rates were 15% per quarter. He an- nounces to the class that MMM is a growth company. Which type of bias or heuristic is Professor French falling victim too? Explain briefly