Question

Read the following statements and answer the question that follows.
1. Behavioral models in finance most often critique the efficient market hypothesis, which states that if investors behave rationally then prices should reflect all available information about the financial asset in consideration.
2. A number of behavioral models, including feedback models where investors bid up the price, have been used to explain this phenomenon.
3. But asset price bubbles and crashes belie this conclusion.
4. Finance is one of the fields where behavioral models have been used extensively, enough for behavioral finance.
5. This idea of “irrational exuberance” is now widely accepted and used in financial analysis, especially while analyzing asset price bubbles.
Arrange the above five statements in a logical sequence.

• A. 4, 3, 1, 5, 2
• B. 1, 4, 2, 3, 5
• C. 4, 1, 3, 2, 5
• D. 1, 3, 2, 5, 4
• E. 4, 5, 1, 3, 2

Answer 1

The Correct Option is C

Step 1: Identify the Introduction 
Statement 4 introduces the subject: behavioral models are widely used in finance. Hence, it is the logical starting point.

Step 2: Build the Flow
After the general introduction, Statement 1 explains what behavioral models critique: the efficient market hypothesis. Then Statement 3 highlights how asset price bubbles and crashes contradict this rationality assumption. Statement 2 follows logically, showing that feedback models explain this irrational phenomenon. Finally, Statement 5 concludes with the idea of “irrational exuberance” being widely accepted today.

Step 3: Logical Order
Thus, the correct order is: \[ 4 \;\rightarrow\; 1 \;\rightarrow\; 3 \;\rightarrow\; 2 \;\rightarrow\; 5 \]

Step 4: Conclusion
The logical sequence is captured by Option (C).

Final Answer:
\[ \boxed{\text{4, 1, 3, 2, 5}} \]