The following text is from a political economy article.
Market efficiency claims face tension with behavioral findings of systematic irrationality. If market participants regularly exhibit predictable biases, how can market prices reflect all available information? Defenders argue that arbitrageurs correct mispricings; critics counter that behavioral biases affect arbitrageurs too, and that limits to arbitrage allow mispricings to persist. The debate bears on financial regulation, market design, and economic policy more broadly.
Which choice best describes the function of the last sentence?
It provides specific policy recommendations for regulators.
It indicates the practical stakes of the theoretical debate.
It resolves the tension between efficiency and behavioral findings.
It introduces new empirical data about market behavior.
Correct Answer: B
Choice B is the best answer. The last sentence notes the debate bears on regulation, design, and policy—indicating practical stakes of the theory.
- Evidence: The sentence states: "The debate bears on financial regulation, market design, and economic policy more broadly."
- Reasoning: It explains why this theoretical argument about markets actually matters in the real world.
- Conclusion: The function is to indicate practical stakes.
💡 Strategy: Look for "bears on... regulation, policy."
Choice A is incorrect because specific recommendations aren't given. Choice C is incorrect because the tension remains. Choice D is incorrect because new data isn't introduced.