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When I first read about the fascinating ‘Star Wars’ deal between Steven Spielberg and George Lucas, my reaction was that this was a simple diversification story. But then I realized that it is more complex than that; the obstacles in the form of skewness preference, adverse selection, and moral hazard are strong enough to make deals like this probably quite rare.
The story itself is very simple and Business Insider tells it well. Back in 1977, George Lucas was making his ‘Star Wars’ film, and Steven Spielberg was making ‘Close Encounters of the Third Kind’. Lucas was worried that his ‘Star Wars’ film might bomb and thought that ‘Close Encounters’ would be a great hit. So he made an offer to his friend Spielberg, “All right, I’ll tell you what. I’ll trade some points with you. You want to trade some points? I’ll give you 2.5% of ‘Star Wars’ if you give me 2.5% of ‘Close Encounters’.” Spielberg’s response was, “Sure, I’ll gamble with that. Great.” Both films ended up as great classics, but ‘Star Wars’ was by far the greater commercial success and Lucas ended up paying millions of dollars to Spielberg.
At the time when neither knew whether either of the films would succeed, the exchange was a simple diversification trade that made both better off. So why are such trades not routine? One reason could be that many films are made by large companies that are already well diversified.
A more important factor is information asymmetry: normally, each director would know very little of the other’s film and then trades become impossible. The Lucas-Spielberg trade was possible because they were friends. It is telling that the trade was made after Lucas had spent a few days watching Spielberg make his film. It takes a lot of due diligence to overcome the information asymmetry.
The other problem is skewness preference. Nobody buys a large number of lottery tickets to “diversify the risk”, because that diversification would also remove the skewness that makes lottery tickets worthwhile. Probably both Lucas and Spielberg thought their films had risk- adjusted returns that made them attractive even without the skewness characteristic.
It is also possible that Lucas simply did an irrational trade. Lucas is described as “a nervous wreck ... [who] felt he had just made this little kids’ movie”. Perhaps, Spielberg was simply at the right time at the right place to do a one-sided trade with an emotionally disturbed counterparty. Maybe, we should all be looking out for friends who are sufficiently depressed to offer us a Lucas type trade.
The story itself is very simple and Business Insider tells it well. Back in 1977, George Lucas was making his ‘Star Wars’ film, and Steven Spielberg was making ‘Close Encounters of the Third Kind’. Lucas was worried that his ‘Star Wars’ film might bomb and thought that ‘Close Encounters’ would be a great hit. So he made an offer to his friend Spielberg, “All right, I’ll tell you what. I’ll trade some points with you. You want to trade some points? I’ll give you 2.5% of ‘Star Wars’ if you give me 2.5% of ‘Close Encounters’.” Spielberg’s response was, “Sure, I’ll gamble with that. Great.” Both films ended up as great classics, but ‘Star Wars’ was by far the greater commercial success and Lucas ended up paying millions of dollars to Spielberg.
At the time when neither knew whether either of the films would succeed, the exchange was a simple diversification trade that made both better off. So why are such trades not routine? One reason could be that many films are made by large companies that are already well diversified.
A more important factor is information asymmetry: normally, each director would know very little of the other’s film and then trades become impossible. The Lucas-Spielberg trade was possible because they were friends. It is telling that the trade was made after Lucas had spent a few days watching Spielberg make his film. It takes a lot of due diligence to overcome the information asymmetry.
The other problem is skewness preference. Nobody buys a large number of lottery tickets to “diversify the risk”, because that diversification would also remove the skewness that makes lottery tickets worthwhile. Probably both Lucas and Spielberg thought their films had risk- adjusted returns that made them attractive even without the skewness characteristic.
It is also possible that Lucas simply did an irrational trade. Lucas is described as “a nervous wreck ... [who] felt he had just made this little kids’ movie”. Perhaps, Spielberg was simply at the right time at the right place to do a one-sided trade with an emotionally disturbed counterparty. Maybe, we should all be looking out for friends who are sufficiently depressed to offer us a Lucas type trade.
Q. According to the passage, what was special about the deal between Steven Spielberg and George Lucas?
- a)It w as a diversification trade.
- b)it was an irrational deal.
- c)It was a deal between friends.
- d)It was a once in a lifetime deal.
Correct answer is option 'A'. Can you explain this answer?
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Verified Answer
When I first read about the fascinating Star Wars deal between Steven ...
Option 1 can be validated from “At the time ...a simple diversification trade that made both better off.” Options 2 and 3 are true but do not address the speciality of the deal.
Option 4 cannot be corroborated from the passage.
Hence, the correct answer is option 1.
Option 4 cannot be corroborated from the passage.
Hence, the correct answer is option 1.
Most Upvoted Answer
When I first read about the fascinating Star Wars deal between Steven ...
Understanding the Deal
The deal between Steven Spielberg and George Lucas in 1977 was unique and stands out for several reasons, primarily as a diversification trade.
Key Aspects of the Deal
- Diversification Trade:
- Both filmmakers exchanged shares from their respective films, Star Wars and Close Encounters of the Third Kind.
- This exchange allowed each to mitigate individual risk by gaining exposure to the success of the other’s film.
- Mutual Benefit:
- At a time when both films were uncertain ventures, this trade was mutually advantageous, as it provided a safety net against failure.
- Friendship Factor:
- Their personal relationship enabled a level of trust and understanding, making the deal feasible despite the inherent risks.
- Risk and Reward:
- Both believed their films had potential for high returns, and the trade enhanced the chances of financial success without significant cash outlay.
Challenges in Similar Deals
- Information Asymmetry:
- Typically, filmmakers do not have adequate knowledge about each other's projects, making such trades rare.
- Skewness Preference:
- Potential investors often prefer high-risk, high-reward opportunities rather than diversifying them away, as it diminishes the chance of extraordinary returns.
Conclusion
While the deal was indeed a form of diversification, it also hinged on the friendship and trust between the two directors, differentiating it from other potential trades in the industry.
The deal between Steven Spielberg and George Lucas in 1977 was unique and stands out for several reasons, primarily as a diversification trade.
Key Aspects of the Deal
- Diversification Trade:
- Both filmmakers exchanged shares from their respective films, Star Wars and Close Encounters of the Third Kind.
- This exchange allowed each to mitigate individual risk by gaining exposure to the success of the other’s film.
- Mutual Benefit:
- At a time when both films were uncertain ventures, this trade was mutually advantageous, as it provided a safety net against failure.
- Friendship Factor:
- Their personal relationship enabled a level of trust and understanding, making the deal feasible despite the inherent risks.
- Risk and Reward:
- Both believed their films had potential for high returns, and the trade enhanced the chances of financial success without significant cash outlay.
Challenges in Similar Deals
- Information Asymmetry:
- Typically, filmmakers do not have adequate knowledge about each other's projects, making such trades rare.
- Skewness Preference:
- Potential investors often prefer high-risk, high-reward opportunities rather than diversifying them away, as it diminishes the chance of extraordinary returns.
Conclusion
While the deal was indeed a form of diversification, it also hinged on the friendship and trust between the two directors, differentiating it from other potential trades in the industry.
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When I first read about the fascinating Star Wars deal between Steven Spielberg and George Lucas, my reaction was that this was a simple diversification story. But then I realized that it is more complex than that; the obstacles in the form of skewness preference, adverse selection, and moral hazard are strong enough to make deals like this probably quite rare.The story itself is very simple and Business Insider tells it well. Back in 1977, George Lucas was making his Star Wars film, and Steven Spielberg was making Close Encounters of the Third Kind. Lucas was worried that his Star Wars film might bomb and thought that Close Encounters would be a great hit. So he made an offer to his friend Spielberg, All right, Ill tell you what. Ill trade some points with you. You want to trade some points? Ill give you 2.5% of Star Wars if you give me 2.5% of Close Encounters. Spielbergs response was, Sure, Ill gamble with that. Great. Both films ended up as great classics, but Star Wars was by far the greater commercial success and Lucas ended up paying millions of dollars to Spielberg.At the time when neither knew whether either of the films would succeed, the exchange was a simple diversification trade that made both better off. So why are such trades not routine? One reason could be that many films are made by large companies that are already well diversified.A more important factor is information asymmetry: normally, each director would know very little of the others film and then trades become impossible. The Lucas-Spielberg trade was possible because they were friends. It is telling that the trade was made after Lucas had spent a few days watching Spielberg make his film. It takes a lot of due diligence to overcome the information asymmetry.The other problem is skewness preference. Nobody buys a large number of lottery tickets to diversify the risk, because that diversification would also remove the skewness that makes lottery tickets worthwhile. Probably both Lucas and Spielberg thought their films had risk- adjusted returns that made them attractive even without the skewness characteristic.It is also possible that Lucas simply did an irrational trade. Lucas is described as a nervous wreck ... [who] felt he had just made this little kids movie. Perhaps, Spielberg was simply at the right time at the right place to do a one-sided trade with an emotionally disturbed counterparty. Maybe, we should all be looking out for friends who are sufficiently depressed to offer us a Lucas type trade.Q.According to the passage, what was special about the deal between Steven Spielberg and George Lucas?a)It w as a diversification trade.b)it was an irrational deal.c)It was a deal between friends.d)It was a once in a lifetime deal.Correct answer is option 'A'. Can you explain this answer?
Question Description
When I first read about the fascinating Star Wars deal between Steven Spielberg and George Lucas, my reaction was that this was a simple diversification story. But then I realized that it is more complex than that; the obstacles in the form of skewness preference, adverse selection, and moral hazard are strong enough to make deals like this probably quite rare.The story itself is very simple and Business Insider tells it well. Back in 1977, George Lucas was making his Star Wars film, and Steven Spielberg was making Close Encounters of the Third Kind. Lucas was worried that his Star Wars film might bomb and thought that Close Encounters would be a great hit. So he made an offer to his friend Spielberg, All right, Ill tell you what. Ill trade some points with you. You want to trade some points? Ill give you 2.5% of Star Wars if you give me 2.5% of Close Encounters. Spielbergs response was, Sure, Ill gamble with that. Great. Both films ended up as great classics, but Star Wars was by far the greater commercial success and Lucas ended up paying millions of dollars to Spielberg.At the time when neither knew whether either of the films would succeed, the exchange was a simple diversification trade that made both better off. So why are such trades not routine? One reason could be that many films are made by large companies that are already well diversified.A more important factor is information asymmetry: normally, each director would know very little of the others film and then trades become impossible. The Lucas-Spielberg trade was possible because they were friends. It is telling that the trade was made after Lucas had spent a few days watching Spielberg make his film. It takes a lot of due diligence to overcome the information asymmetry.The other problem is skewness preference. Nobody buys a large number of lottery tickets to diversify the risk, because that diversification would also remove the skewness that makes lottery tickets worthwhile. Probably both Lucas and Spielberg thought their films had risk- adjusted returns that made them attractive even without the skewness characteristic.It is also possible that Lucas simply did an irrational trade. Lucas is described as a nervous wreck ... [who] felt he had just made this little kids movie. Perhaps, Spielberg was simply at the right time at the right place to do a one-sided trade with an emotionally disturbed counterparty. Maybe, we should all be looking out for friends who are sufficiently depressed to offer us a Lucas type trade.Q.According to the passage, what was special about the deal between Steven Spielberg and George Lucas?a)It w as a diversification trade.b)it was an irrational deal.c)It was a deal between friends.d)It was a once in a lifetime deal.Correct answer is option 'A'. Can you explain this answer? for CAT 2024 is part of CAT preparation. The Question and answers have been prepared according to the CAT exam syllabus. Information about When I first read about the fascinating Star Wars deal between Steven Spielberg and George Lucas, my reaction was that this was a simple diversification story. But then I realized that it is more complex than that; the obstacles in the form of skewness preference, adverse selection, and moral hazard are strong enough to make deals like this probably quite rare.The story itself is very simple and Business Insider tells it well. Back in 1977, George Lucas was making his Star Wars film, and Steven Spielberg was making Close Encounters of the Third Kind. Lucas was worried that his Star Wars film might bomb and thought that Close Encounters would be a great hit. So he made an offer to his friend Spielberg, All right, Ill tell you what. Ill trade some points with you. You want to trade some points? Ill give you 2.5% of Star Wars if you give me 2.5% of Close Encounters. Spielbergs response was, Sure, Ill gamble with that. Great. Both films ended up as great classics, but Star Wars was by far the greater commercial success and Lucas ended up paying millions of dollars to Spielberg.At the time when neither knew whether either of the films would succeed, the exchange was a simple diversification trade that made both better off. So why are such trades not routine? One reason could be that many films are made by large companies that are already well diversified.A more important factor is information asymmetry: normally, each director would know very little of the others film and then trades become impossible. The Lucas-Spielberg trade was possible because they were friends. It is telling that the trade was made after Lucas had spent a few days watching Spielberg make his film. It takes a lot of due diligence to overcome the information asymmetry.The other problem is skewness preference. Nobody buys a large number of lottery tickets to diversify the risk, because that diversification would also remove the skewness that makes lottery tickets worthwhile. Probably both Lucas and Spielberg thought their films had risk- adjusted returns that made them attractive even without the skewness characteristic.It is also possible that Lucas simply did an irrational trade. Lucas is described as a nervous wreck ... [who] felt he had just made this little kids movie. Perhaps, Spielberg was simply at the right time at the right place to do a one-sided trade with an emotionally disturbed counterparty. Maybe, we should all be looking out for friends who are sufficiently depressed to offer us a Lucas type trade.Q.According to the passage, what was special about the deal between Steven Spielberg and George Lucas?a)It w as a diversification trade.b)it was an irrational deal.c)It was a deal between friends.d)It was a once in a lifetime deal.Correct answer is option 'A'. Can you explain this answer? covers all topics & solutions for CAT 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for When I first read about the fascinating Star Wars deal between Steven Spielberg and George Lucas, my reaction was that this was a simple diversification story. But then I realized that it is more complex than that; the obstacles in the form of skewness preference, adverse selection, and moral hazard are strong enough to make deals like this probably quite rare.The story itself is very simple and Business Insider tells it well. Back in 1977, George Lucas was making his Star Wars film, and Steven Spielberg was making Close Encounters of the Third Kind. Lucas was worried that his Star Wars film might bomb and thought that Close Encounters would be a great hit. So he made an offer to his friend Spielberg, All right, Ill tell you what. Ill trade some points with you. You want to trade some points? Ill give you 2.5% of Star Wars if you give me 2.5% of Close Encounters. Spielbergs response was, Sure, Ill gamble with that. Great. Both films ended up as great classics, but Star Wars was by far the greater commercial success and Lucas ended up paying millions of dollars to Spielberg.At the time when neither knew whether either of the films would succeed, the exchange was a simple diversification trade that made both better off. So why are such trades not routine? One reason could be that many films are made by large companies that are already well diversified.A more important factor is information asymmetry: normally, each director would know very little of the others film and then trades become impossible. The Lucas-Spielberg trade was possible because they were friends. It is telling that the trade was made after Lucas had spent a few days watching Spielberg make his film. It takes a lot of due diligence to overcome the information asymmetry.The other problem is skewness preference. Nobody buys a large number of lottery tickets to diversify the risk, because that diversification would also remove the skewness that makes lottery tickets worthwhile. Probably both Lucas and Spielberg thought their films had risk- adjusted returns that made them attractive even without the skewness characteristic.It is also possible that Lucas simply did an irrational trade. Lucas is described as a nervous wreck ... [who] felt he had just made this little kids movie. Perhaps, Spielberg was simply at the right time at the right place to do a one-sided trade with an emotionally disturbed counterparty. Maybe, we should all be looking out for friends who are sufficiently depressed to offer us a Lucas type trade.Q.According to the passage, what was special about the deal between Steven Spielberg and George Lucas?a)It w as a diversification trade.b)it was an irrational deal.c)It was a deal between friends.d)It was a once in a lifetime deal.Correct answer is option 'A'. Can you explain this answer?.
When I first read about the fascinating Star Wars deal between Steven Spielberg and George Lucas, my reaction was that this was a simple diversification story. But then I realized that it is more complex than that; the obstacles in the form of skewness preference, adverse selection, and moral hazard are strong enough to make deals like this probably quite rare.The story itself is very simple and Business Insider tells it well. Back in 1977, George Lucas was making his Star Wars film, and Steven Spielberg was making Close Encounters of the Third Kind. Lucas was worried that his Star Wars film might bomb and thought that Close Encounters would be a great hit. So he made an offer to his friend Spielberg, All right, Ill tell you what. Ill trade some points with you. You want to trade some points? Ill give you 2.5% of Star Wars if you give me 2.5% of Close Encounters. Spielbergs response was, Sure, Ill gamble with that. Great. Both films ended up as great classics, but Star Wars was by far the greater commercial success and Lucas ended up paying millions of dollars to Spielberg.At the time when neither knew whether either of the films would succeed, the exchange was a simple diversification trade that made both better off. So why are such trades not routine? One reason could be that many films are made by large companies that are already well diversified.A more important factor is information asymmetry: normally, each director would know very little of the others film and then trades become impossible. The Lucas-Spielberg trade was possible because they were friends. It is telling that the trade was made after Lucas had spent a few days watching Spielberg make his film. It takes a lot of due diligence to overcome the information asymmetry.The other problem is skewness preference. Nobody buys a large number of lottery tickets to diversify the risk, because that diversification would also remove the skewness that makes lottery tickets worthwhile. Probably both Lucas and Spielberg thought their films had risk- adjusted returns that made them attractive even without the skewness characteristic.It is also possible that Lucas simply did an irrational trade. Lucas is described as a nervous wreck ... [who] felt he had just made this little kids movie. Perhaps, Spielberg was simply at the right time at the right place to do a one-sided trade with an emotionally disturbed counterparty. Maybe, we should all be looking out for friends who are sufficiently depressed to offer us a Lucas type trade.Q.According to the passage, what was special about the deal between Steven Spielberg and George Lucas?a)It w as a diversification trade.b)it was an irrational deal.c)It was a deal between friends.d)It was a once in a lifetime deal.Correct answer is option 'A'. Can you explain this answer? for CAT 2024 is part of CAT preparation. The Question and answers have been prepared according to the CAT exam syllabus. Information about When I first read about the fascinating Star Wars deal between Steven Spielberg and George Lucas, my reaction was that this was a simple diversification story. But then I realized that it is more complex than that; the obstacles in the form of skewness preference, adverse selection, and moral hazard are strong enough to make deals like this probably quite rare.The story itself is very simple and Business Insider tells it well. Back in 1977, George Lucas was making his Star Wars film, and Steven Spielberg was making Close Encounters of the Third Kind. Lucas was worried that his Star Wars film might bomb and thought that Close Encounters would be a great hit. So he made an offer to his friend Spielberg, All right, Ill tell you what. Ill trade some points with you. You want to trade some points? Ill give you 2.5% of Star Wars if you give me 2.5% of Close Encounters. Spielbergs response was, Sure, Ill gamble with that. Great. Both films ended up as great classics, but Star Wars was by far the greater commercial success and Lucas ended up paying millions of dollars to Spielberg.At the time when neither knew whether either of the films would succeed, the exchange was a simple diversification trade that made both better off. So why are such trades not routine? One reason could be that many films are made by large companies that are already well diversified.A more important factor is information asymmetry: normally, each director would know very little of the others film and then trades become impossible. The Lucas-Spielberg trade was possible because they were friends. It is telling that the trade was made after Lucas had spent a few days watching Spielberg make his film. It takes a lot of due diligence to overcome the information asymmetry.The other problem is skewness preference. Nobody buys a large number of lottery tickets to diversify the risk, because that diversification would also remove the skewness that makes lottery tickets worthwhile. Probably both Lucas and Spielberg thought their films had risk- adjusted returns that made them attractive even without the skewness characteristic.It is also possible that Lucas simply did an irrational trade. Lucas is described as a nervous wreck ... [who] felt he had just made this little kids movie. Perhaps, Spielberg was simply at the right time at the right place to do a one-sided trade with an emotionally disturbed counterparty. Maybe, we should all be looking out for friends who are sufficiently depressed to offer us a Lucas type trade.Q.According to the passage, what was special about the deal between Steven Spielberg and George Lucas?a)It w as a diversification trade.b)it was an irrational deal.c)It was a deal between friends.d)It was a once in a lifetime deal.Correct answer is option 'A'. Can you explain this answer? covers all topics & solutions for CAT 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for When I first read about the fascinating Star Wars deal between Steven Spielberg and George Lucas, my reaction was that this was a simple diversification story. But then I realized that it is more complex than that; the obstacles in the form of skewness preference, adverse selection, and moral hazard are strong enough to make deals like this probably quite rare.The story itself is very simple and Business Insider tells it well. Back in 1977, George Lucas was making his Star Wars film, and Steven Spielberg was making Close Encounters of the Third Kind. Lucas was worried that his Star Wars film might bomb and thought that Close Encounters would be a great hit. So he made an offer to his friend Spielberg, All right, Ill tell you what. Ill trade some points with you. You want to trade some points? Ill give you 2.5% of Star Wars if you give me 2.5% of Close Encounters. Spielbergs response was, Sure, Ill gamble with that. Great. Both films ended up as great classics, but Star Wars was by far the greater commercial success and Lucas ended up paying millions of dollars to Spielberg.At the time when neither knew whether either of the films would succeed, the exchange was a simple diversification trade that made both better off. So why are such trades not routine? One reason could be that many films are made by large companies that are already well diversified.A more important factor is information asymmetry: normally, each director would know very little of the others film and then trades become impossible. The Lucas-Spielberg trade was possible because they were friends. It is telling that the trade was made after Lucas had spent a few days watching Spielberg make his film. It takes a lot of due diligence to overcome the information asymmetry.The other problem is skewness preference. Nobody buys a large number of lottery tickets to diversify the risk, because that diversification would also remove the skewness that makes lottery tickets worthwhile. Probably both Lucas and Spielberg thought their films had risk- adjusted returns that made them attractive even without the skewness characteristic.It is also possible that Lucas simply did an irrational trade. Lucas is described as a nervous wreck ... [who] felt he had just made this little kids movie. Perhaps, Spielberg was simply at the right time at the right place to do a one-sided trade with an emotionally disturbed counterparty. Maybe, we should all be looking out for friends who are sufficiently depressed to offer us a Lucas type trade.Q.According to the passage, what was special about the deal between Steven Spielberg and George Lucas?a)It w as a diversification trade.b)it was an irrational deal.c)It was a deal between friends.d)It was a once in a lifetime deal.Correct answer is option 'A'. Can you explain this answer?.
Solutions for When I first read about the fascinating Star Wars deal between Steven Spielberg and George Lucas, my reaction was that this was a simple diversification story. But then I realized that it is more complex than that; the obstacles in the form of skewness preference, adverse selection, and moral hazard are strong enough to make deals like this probably quite rare.The story itself is very simple and Business Insider tells it well. Back in 1977, George Lucas was making his Star Wars film, and Steven Spielberg was making Close Encounters of the Third Kind. Lucas was worried that his Star Wars film might bomb and thought that Close Encounters would be a great hit. So he made an offer to his friend Spielberg, All right, Ill tell you what. Ill trade some points with you. You want to trade some points? Ill give you 2.5% of Star Wars if you give me 2.5% of Close Encounters. Spielbergs response was, Sure, Ill gamble with that. Great. Both films ended up as great classics, but Star Wars was by far the greater commercial success and Lucas ended up paying millions of dollars to Spielberg.At the time when neither knew whether either of the films would succeed, the exchange was a simple diversification trade that made both better off. So why are such trades not routine? One reason could be that many films are made by large companies that are already well diversified.A more important factor is information asymmetry: normally, each director would know very little of the others film and then trades become impossible. The Lucas-Spielberg trade was possible because they were friends. It is telling that the trade was made after Lucas had spent a few days watching Spielberg make his film. It takes a lot of due diligence to overcome the information asymmetry.The other problem is skewness preference. Nobody buys a large number of lottery tickets to diversify the risk, because that diversification would also remove the skewness that makes lottery tickets worthwhile. Probably both Lucas and Spielberg thought their films had risk- adjusted returns that made them attractive even without the skewness characteristic.It is also possible that Lucas simply did an irrational trade. Lucas is described as a nervous wreck ... [who] felt he had just made this little kids movie. Perhaps, Spielberg was simply at the right time at the right place to do a one-sided trade with an emotionally disturbed counterparty. Maybe, we should all be looking out for friends who are sufficiently depressed to offer us a Lucas type trade.Q.According to the passage, what was special about the deal between Steven Spielberg and George Lucas?a)It w as a diversification trade.b)it was an irrational deal.c)It was a deal between friends.d)It was a once in a lifetime deal.Correct answer is option 'A'. Can you explain this answer? in English & in Hindi are available as part of our courses for CAT.
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Here you can find the meaning of When I first read about the fascinating Star Wars deal between Steven Spielberg and George Lucas, my reaction was that this was a simple diversification story. But then I realized that it is more complex than that; the obstacles in the form of skewness preference, adverse selection, and moral hazard are strong enough to make deals like this probably quite rare.The story itself is very simple and Business Insider tells it well. Back in 1977, George Lucas was making his Star Wars film, and Steven Spielberg was making Close Encounters of the Third Kind. Lucas was worried that his Star Wars film might bomb and thought that Close Encounters would be a great hit. So he made an offer to his friend Spielberg, All right, Ill tell you what. Ill trade some points with you. You want to trade some points? Ill give you 2.5% of Star Wars if you give me 2.5% of Close Encounters. Spielbergs response was, Sure, Ill gamble with that. Great. Both films ended up as great classics, but Star Wars was by far the greater commercial success and Lucas ended up paying millions of dollars to Spielberg.At the time when neither knew whether either of the films would succeed, the exchange was a simple diversification trade that made both better off. So why are such trades not routine? One reason could be that many films are made by large companies that are already well diversified.A more important factor is information asymmetry: normally, each director would know very little of the others film and then trades become impossible. The Lucas-Spielberg trade was possible because they were friends. It is telling that the trade was made after Lucas had spent a few days watching Spielberg make his film. It takes a lot of due diligence to overcome the information asymmetry.The other problem is skewness preference. Nobody buys a large number of lottery tickets to diversify the risk, because that diversification would also remove the skewness that makes lottery tickets worthwhile. Probably both Lucas and Spielberg thought their films had risk- adjusted returns that made them attractive even without the skewness characteristic.It is also possible that Lucas simply did an irrational trade. Lucas is described as a nervous wreck ... [who] felt he had just made this little kids movie. Perhaps, Spielberg was simply at the right time at the right place to do a one-sided trade with an emotionally disturbed counterparty. Maybe, we should all be looking out for friends who are sufficiently depressed to offer us a Lucas type trade.Q.According to the passage, what was special about the deal between Steven Spielberg and George Lucas?a)It w as a diversification trade.b)it was an irrational deal.c)It was a deal between friends.d)It was a once in a lifetime deal.Correct answer is option 'A'. Can you explain this answer? defined & explained in the simplest way possible. Besides giving the explanation of
When I first read about the fascinating Star Wars deal between Steven Spielberg and George Lucas, my reaction was that this was a simple diversification story. But then I realized that it is more complex than that; the obstacles in the form of skewness preference, adverse selection, and moral hazard are strong enough to make deals like this probably quite rare.The story itself is very simple and Business Insider tells it well. Back in 1977, George Lucas was making his Star Wars film, and Steven Spielberg was making Close Encounters of the Third Kind. Lucas was worried that his Star Wars film might bomb and thought that Close Encounters would be a great hit. So he made an offer to his friend Spielberg, All right, Ill tell you what. Ill trade some points with you. You want to trade some points? Ill give you 2.5% of Star Wars if you give me 2.5% of Close Encounters. Spielbergs response was, Sure, Ill gamble with that. Great. Both films ended up as great classics, but Star Wars was by far the greater commercial success and Lucas ended up paying millions of dollars to Spielberg.At the time when neither knew whether either of the films would succeed, the exchange was a simple diversification trade that made both better off. So why are such trades not routine? One reason could be that many films are made by large companies that are already well diversified.A more important factor is information asymmetry: normally, each director would know very little of the others film and then trades become impossible. The Lucas-Spielberg trade was possible because they were friends. It is telling that the trade was made after Lucas had spent a few days watching Spielberg make his film. It takes a lot of due diligence to overcome the information asymmetry.The other problem is skewness preference. Nobody buys a large number of lottery tickets to diversify the risk, because that diversification would also remove the skewness that makes lottery tickets worthwhile. Probably both Lucas and Spielberg thought their films had risk- adjusted returns that made them attractive even without the skewness characteristic.It is also possible that Lucas simply did an irrational trade. Lucas is described as a nervous wreck ... [who] felt he had just made this little kids movie. Perhaps, Spielberg was simply at the right time at the right place to do a one-sided trade with an emotionally disturbed counterparty. Maybe, we should all be looking out for friends who are sufficiently depressed to offer us a Lucas type trade.Q.According to the passage, what was special about the deal between Steven Spielberg and George Lucas?a)It w as a diversification trade.b)it was an irrational deal.c)It was a deal between friends.d)It was a once in a lifetime deal.Correct answer is option 'A'. Can you explain this answer?, a detailed solution for When I first read about the fascinating Star Wars deal between Steven Spielberg and George Lucas, my reaction was that this was a simple diversification story. But then I realized that it is more complex than that; the obstacles in the form of skewness preference, adverse selection, and moral hazard are strong enough to make deals like this probably quite rare.The story itself is very simple and Business Insider tells it well. Back in 1977, George Lucas was making his Star Wars film, and Steven Spielberg was making Close Encounters of the Third Kind. Lucas was worried that his Star Wars film might bomb and thought that Close Encounters would be a great hit. So he made an offer to his friend Spielberg, All right, Ill tell you what. Ill trade some points with you. You want to trade some points? Ill give you 2.5% of Star Wars if you give me 2.5% of Close Encounters. Spielbergs response was, Sure, Ill gamble with that. Great. Both films ended up as great classics, but Star Wars was by far the greater commercial success and Lucas ended up paying millions of dollars to Spielberg.At the time when neither knew whether either of the films would succeed, the exchange was a simple diversification trade that made both better off. So why are such trades not routine? One reason could be that many films are made by large companies that are already well diversified.A more important factor is information asymmetry: normally, each director would know very little of the others film and then trades become impossible. The Lucas-Spielberg trade was possible because they were friends. It is telling that the trade was made after Lucas had spent a few days watching Spielberg make his film. It takes a lot of due diligence to overcome the information asymmetry.The other problem is skewness preference. Nobody buys a large number of lottery tickets to diversify the risk, because that diversification would also remove the skewness that makes lottery tickets worthwhile. Probably both Lucas and Spielberg thought their films had risk- adjusted returns that made them attractive even without the skewness characteristic.It is also possible that Lucas simply did an irrational trade. Lucas is described as a nervous wreck ... [who] felt he had just made this little kids movie. Perhaps, Spielberg was simply at the right time at the right place to do a one-sided trade with an emotionally disturbed counterparty. Maybe, we should all be looking out for friends who are sufficiently depressed to offer us a Lucas type trade.Q.According to the passage, what was special about the deal between Steven Spielberg and George Lucas?a)It w as a diversification trade.b)it was an irrational deal.c)It was a deal between friends.d)It was a once in a lifetime deal.Correct answer is option 'A'. Can you explain this answer? has been provided alongside types of When I first read about the fascinating Star Wars deal between Steven Spielberg and George Lucas, my reaction was that this was a simple diversification story. But then I realized that it is more complex than that; the obstacles in the form of skewness preference, adverse selection, and moral hazard are strong enough to make deals like this probably quite rare.The story itself is very simple and Business Insider tells it well. Back in 1977, George Lucas was making his Star Wars film, and Steven Spielberg was making Close Encounters of the Third Kind. Lucas was worried that his Star Wars film might bomb and thought that Close Encounters would be a great hit. So he made an offer to his friend Spielberg, All right, Ill tell you what. Ill trade some points with you. You want to trade some points? Ill give you 2.5% of Star Wars if you give me 2.5% of Close Encounters. Spielbergs response was, Sure, Ill gamble with that. Great. Both films ended up as great classics, but Star Wars was by far the greater commercial success and Lucas ended up paying millions of dollars to Spielberg.At the time when neither knew whether either of the films would succeed, the exchange was a simple diversification trade that made both better off. So why are such trades not routine? One reason could be that many films are made by large companies that are already well diversified.A more important factor is information asymmetry: normally, each director would know very little of the others film and then trades become impossible. The Lucas-Spielberg trade was possible because they were friends. It is telling that the trade was made after Lucas had spent a few days watching Spielberg make his film. It takes a lot of due diligence to overcome the information asymmetry.The other problem is skewness preference. Nobody buys a large number of lottery tickets to diversify the risk, because that diversification would also remove the skewness that makes lottery tickets worthwhile. Probably both Lucas and Spielberg thought their films had risk- adjusted returns that made them attractive even without the skewness characteristic.It is also possible that Lucas simply did an irrational trade. Lucas is described as a nervous wreck ... [who] felt he had just made this little kids movie. Perhaps, Spielberg was simply at the right time at the right place to do a one-sided trade with an emotionally disturbed counterparty. Maybe, we should all be looking out for friends who are sufficiently depressed to offer us a Lucas type trade.Q.According to the passage, what was special about the deal between Steven Spielberg and George Lucas?a)It w as a diversification trade.b)it was an irrational deal.c)It was a deal between friends.d)It was a once in a lifetime deal.Correct answer is option 'A'. Can you explain this answer? theory, EduRev gives you an
ample number of questions to practice When I first read about the fascinating Star Wars deal between Steven Spielberg and George Lucas, my reaction was that this was a simple diversification story. But then I realized that it is more complex than that; the obstacles in the form of skewness preference, adverse selection, and moral hazard are strong enough to make deals like this probably quite rare.The story itself is very simple and Business Insider tells it well. Back in 1977, George Lucas was making his Star Wars film, and Steven Spielberg was making Close Encounters of the Third Kind. Lucas was worried that his Star Wars film might bomb and thought that Close Encounters would be a great hit. So he made an offer to his friend Spielberg, All right, Ill tell you what. Ill trade some points with you. You want to trade some points? Ill give you 2.5% of Star Wars if you give me 2.5% of Close Encounters. Spielbergs response was, Sure, Ill gamble with that. Great. Both films ended up as great classics, but Star Wars was by far the greater commercial success and Lucas ended up paying millions of dollars to Spielberg.At the time when neither knew whether either of the films would succeed, the exchange was a simple diversification trade that made both better off. So why are such trades not routine? One reason could be that many films are made by large companies that are already well diversified.A more important factor is information asymmetry: normally, each director would know very little of the others film and then trades become impossible. The Lucas-Spielberg trade was possible because they were friends. It is telling that the trade was made after Lucas had spent a few days watching Spielberg make his film. It takes a lot of due diligence to overcome the information asymmetry.The other problem is skewness preference. Nobody buys a large number of lottery tickets to diversify the risk, because that diversification would also remove the skewness that makes lottery tickets worthwhile. Probably both Lucas and Spielberg thought their films had risk- adjusted returns that made them attractive even without the skewness characteristic.It is also possible that Lucas simply did an irrational trade. Lucas is described as a nervous wreck ... [who] felt he had just made this little kids movie. Perhaps, Spielberg was simply at the right time at the right place to do a one-sided trade with an emotionally disturbed counterparty. Maybe, we should all be looking out for friends who are sufficiently depressed to offer us a Lucas type trade.Q.According to the passage, what was special about the deal between Steven Spielberg and George Lucas?a)It w as a diversification trade.b)it was an irrational deal.c)It was a deal between friends.d)It was a once in a lifetime deal.Correct answer is option 'A'. Can you explain this answer? tests, examples and also practice CAT tests.
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