Question 1

Precommitments must impose costs on people to be effective.

Accepted Answer

A) True 
 B)False  False

Question 2

Salar y smoothing, automatic payroll deductions, and early withdrawal penalties are all examples of

Accepted Answer

A) mechanisms imposed by companies to extract more from their workers and customers. 
B) policies that do not fundamentally alter decisions because they do not change the benefits or costs of an action. 
C) precommitments. 
D) hardwired heuristics. 
A) mechanisms imposed by companies to extract more from their workers and customers. 
B) policies that do not fundamentally alter decisions because they do not change the benefits or costs of an action. 
C) precommitments. 
D) hardwired heuristics. C

Question 3

When the ultimatum game is played for larger rather than smaller amounts of money, behavioral economists have found that when the proposed splits are ver y uneven

Accepted Answer

A) responders are much more likely to accept the offer because of the amount of money involved. 
B) responders are no more likely to accept the offer if they consider the split to be unfair. 
C) responders are much less likely to accept the offer, because their sense of unfairness is heightened with larger amounts of money. 
D) responders will accept offers at a higher rate but will exact greater emotional penalties on the proposer. 
A) responders are much more likely to accept the offer because of the amount of money involved. 
B) responders are no more likely to accept the offer if they consider the split to be unfair. 
C) responders are much less likely to accept the offer, because their sense of unfairness is heightened with larger amounts of money. 
D) responders will accept offers at a higher rate but will exact greater emotional penalties on the proposer. B

Question 4

Which of the following would represent a systematic error?

Accepted Answer

A) Eddie regularly overspends.Friends and family bail him out, however, so he always ends up with what he wants. 
B) Ellen paid good money for a used car that is in constant need of repair. 
C) Sparky determines that he has to reduce donut consumption to lose weight but always ends up eating the ones provided in the break room at work. 
D) Clark makes regular math err ors at work, sometimes coming out with figures too high, other times too low. 
A) Eddie regularly overspends.Friends and family bail him out, however, so he always ends up with what he wants. 
B) Ellen paid good money for a used car that is in constant need of repair. 
C) Sparky determines that he has to reduce donut consumption to lose weight but always ends up eating the ones provided in the break room at work. 
D) Clark makes regular math err ors at work, sometimes coming out with figures too high, other times too low.

Question 5

The results of running the dictator game experiments thousands of times have revealed to behavioral economists that

Accepted Answer

A) people's sense of fairness is fairly uniform across the population. 
B) most people have little concern for others when it comes to financial matters. 
C) individual feelings about fairness and generosity vary widely across the population. 
D) most people are willing to give more than they will keep for themselves. 
A) people's sense of fairness is fairly uniform across the population. 
B) most people have little concern for others when it comes to financial matters. 
C) individual feelings about fairness and generosity vary widely across the population. 
D) most people are willing to give more than they will keep for themselves.

Question 6

Why, according to behavioral economics, would supermarkets place gum, candy, and other small convenience items near the cash registers?

Accepted Answer

A) Those are the shelving locations that minimize costs. 
B) Stores try to make frequently purchased items quicker and easier for consumers to access. 
C) Smaller items tend to fall through shopping cart holes, so stores reduce that problem for consumers by having smaller items at the checkout stands. 
D) Many of these are small items that people will buy on an impulse. 
A) Those are the shelving locations that minimize costs. 
B) Stores try to make frequently purchased items quicker and easier for consumers to access. 
C) Smaller items tend to fall through shopping cart holes, so stores reduce that problem for consumers by having smaller items at the checkout stands. 
D) Many of these are small items that people will buy on an impulse.

Question 7

The "shadow heuristic" is all of the following, except

Accepted Answer

A) when the brain assumes that light always falls from above. 
B) what makes us interpret two-dimensional shaded circles as three-dimensional bumps or holes. 
C) what allows us to measure the height of a tall structure by analyzing its shadow. 
D) when we sometimes mistakenly interpret the contours of a picture of a ball or a box. 
A) when the brain assumes that light always falls from above. 
B) what makes us interpret two-dimensional shaded circles as three-dimensional bumps or holes. 
C) what allows us to measure the height of a tall structure by analyzing its shadow. 
D) when we sometimes mistakenly interpret the contours of a picture of a ball or a box.

Question 8

The tendency of people to underestimate the time required to complete a task is called the

Accepted Answer

A) planning fallacy. 
B) framing effect. 
C) hindsight bias. 
D) availability heuristic. 
A) planning fallacy. 
B) framing effect. 
C) hindsight bias. 
D) availability heuristic.

Question 9

One major consequence of the planning fallacy is that

Accepted Answer

A) people may spend more resources to insure themselves against rare events, but leave themselves uninsured against more common events. 
B) someone could persist in pursuing a failed policy despite overwhelming evidence of the failure. 
C) major business projects may create bottlenecks in the organization because they are not completed as scheduled. 
D) some people may wrongly believe in their forecasting ability to predict future outcomes of risky investments. 
A) people may spend more resources to insure themselves against rare events, but leave themselves uninsured against more common events. 
B) someone could persist in pursuing a failed policy despite overwhelming evidence of the failure. 
C) major business projects may create bottlenecks in the organization because they are not completed as scheduled. 
D) some people may wrongly believe in their forecasting ability to predict future outcomes of risky investments.

Question 10

Suppose Gina and Henry play two rounds of the ultimatum game.In the first round they play for $10; in the second round they play for $1,000.In the first round Gina suggests an 80/20 split ($8 to Gina, $2 to Henry), but Henry quickly rejects the offer as unfair.If in the second round Gina offers the same split ($800 to Gina, $200 to Henry), research by behavioral economists suggests that Henry will

Accepted Answer

A) accept the offer because the dollar amount he would forgo by rejecting is substantial. 
B) counteroffer with a more even split. 
C) weigh the offer much more carefully because of the dollar amounts involved but ultimately reject the offer. 
D) exhibit a stronger negative reaction than the first time and ultimately reject the offer. 
A) accept the offer because the dollar amount he would forgo by rejecting is substantial. 
B) counteroffer with a more even split. 
C) weigh the offer much more carefully because of the dollar amounts involved but ultimately reject the offer. 
D) exhibit a stronger negative reaction than the first time and ultimately reject the offer.

Question 11

Which of the following statements about human-brain activity is true?

Accepted Answer

A) Unconscious intuition uses the newer parts of the brain in the front part of the head. 
B) Conscious deliberation uses the older parts of the brain in the front part of the head. 
C) Conscious deliberation uses the newer parts of the brain in the front part of the head. 
D) Unconscious intuition uses the older parts of the brain in the front part of the head. 
A) Unconscious intuition uses the newer parts of the brain in the front part of the head. 
B) Conscious deliberation uses the older parts of the brain in the front part of the head. 
C) Conscious deliberation uses the newer parts of the brain in the front part of the head. 
D) Unconscious intuition uses the older parts of the brain in the front part of the head.

Question 12

One major consequence of the availability heuristic is that

Accepted Answer

A) people may spend more resources to insure themselves against rare events, but leave themselves uninsured against more common events. 
B) someone could persist in pursuing a failed policy despite overwhelming evidence of the failure. 
C) bad decisions can be made because people will act without pausing to see whether their intuition is correct or not. 
D) some people may wrongly believe in their forecasting ability to predict future outcomes of risky investments. 
A) people may spend more resources to insure themselves against rare events, but leave themselves uninsured against more common events. 
B) someone could persist in pursuing a failed policy despite overwhelming evidence of the failure. 
C) bad decisions can be made because people will act without pausing to see whether their intuition is correct or not. 
D) some people may wrongly believe in their forecasting ability to predict future outcomes of risky investments.

Question 13

Fairness, according to behavioral economics,

Accepted Answer

A) is too subjective to be considered in the analysis of economic behavior. 
B) can be objectively standardized across individuals. 
C) varies from one individual to another but still affects economic behavior in important ways. 
D) matters to people, but because of self-interest, fairness has little effect on their economic decisions. 
A) is too subjective to be considered in the analysis of economic behavior. 
B) can be objectively standardized across individuals. 
C) varies from one individual to another but still affects economic behavior in important ways. 
D) matters to people, but because of self-interest, fairness has little effect on their economic decisions.

Question 14

Which of the following sets of personal characteristics best reflects what behavioral economists assume about how people make decisions?

Accepted Answer

A) People are irrational, are prone to systematic errors, have stable preferences, and care about fairness. 
B) People are rational, adjust for err ors, have stable preferences, and easily resist temptation. 
C) People care deeply about fairness, eagerly and accurately calculate ways to help others, assess future and present options equally well, and resist temptations in their selflessness. 
D) People have preferences that depend on context, avoid and are bad at computation, often give in to temptation, and are often selfless in their behavior. 
A) People are irrational, are prone to systematic errors, have stable preferences, and care about fairness. 
B) People are rational, adjust for err ors, have stable preferences, and easily resist temptation. 
C) People care deeply about fairness, eagerly and accurately calculate ways to help others, assess future and present options equally well, and resist temptations in their selflessness. 
D) People have preferences that depend on context, avoid and are bad at computation, often give in to temptation, and are often selfless in their behavior.

Question 15

The persistence of some "urban legends" and some myths is a reflection of the

Accepted Answer

A) framing effect. 
B) confirmation bias. 
C) hindsight bias. 
D) availability heuristic. 
A) framing effect. 
B) confirmation bias. 
C) hindsight bias. 
D) availability heuristic.

Question 16

Behavioral economics observes that people generally do not act according to their self-interest.

Accepted Answer

A) True 
 B)False

Question 17

What do neoclassical economics and behavioral economics believe about giving people options?

Accepted Answer

A) Both believe that people make better decisions when they are given a greater set of options. 
B) Behavioral economics focuses on providing more options; neoclassical economics focuses on helping people make more rational decisions with the options available. 
C) Neoclassical economics focuses on providing more options; behavioral economics focuses on helping people make better decisions with the options available. 
D) Both believe that people are better off with fewer options, allowing them to spend more time calculating the benefits and costs of each available option. 
A) Both believe that people make better decisions when they are given a greater set of options. 
B) Behavioral economics focuses on providing more options; neoclassical economics focuses on helping people make more rational decisions with the options available. 
C) Neoclassical economics focuses on providing more options; behavioral economics focuses on helping people make better decisions with the options available. 
D) Both believe that people are better off with fewer options, allowing them to spend more time calculating the benefits and costs of each available option.

Question 18

The dictator game and ultimatum game are experiments that have provided field evidence for

Accepted Answer

A) the invisible hand. 
B) fairness. 
C) self-interest. 
D) cognitive biases. 
A) the invisible hand. 
B) fairness. 
C) self-interest. 
D) cognitive biases.

Question 19

When someone tries to "multitask" despite mounting evidence that multitasking is actually inefficient, this illustrates

Accepted Answer

A) confirmation bias. 
B) the framing effect. 
C) hindsight bias. 
D) the availability heuristic. 
A) confirmation bias. 
B) the framing effect. 
C) hindsight bias. 
D) the availability heuristic.

Question 20

Thea committed a traffic violation that resulted in an accident.She learns first that the violation will result in a $500 fine; she then learns that she will have to pay another $500 for damage caused in the accident.According to prospect theory,

Accepted Answer

A) she will suffer as much disutility from paying for the accident damage as she does from paying the fine. 
B) she will suffer less disutility from paying for the accident damage than from paying the fine. 
C) she will suffer more disutility from paying for the accident damage than from paying the fine. 
D) she will feel less disutility from paying $1,000 than she would receive positive utility from receiving $1,000. 
A) she will suffer as much disutility from paying for the accident damage as she does from paying the fine. 
B) she will suffer less disutility from paying for the accident damage than from paying the fine. 
C) she will suffer more disutility from paying for the accident damage than from paying the fine. 
D) she will feel less disutility from paying $1,000 than she would receive positive utility from receiving $1,000.

Exam 8: Behavioral Economics

Precommitments must impose costs on people to be effective.

Salar y smoothing, automatic payroll deductions, and early withdrawal penalties are all examples of

When the ultimatum game is played for larger rather than smaller amounts of money, behavioral economists have found that when the proposed splits are ver y uneven

Which of the following would represent a systematic error?

The results of running the dictator game experiments thousands of times have revealed to behavioral economists that

Why, according to behavioral economics, would supermarkets place gum, candy, and other small convenience items near the cash registers?

The "shadow heuristic" is all of the following, except

The tendency of people to underestimate the time required to complete a task is called the

One major consequence of the planning fallacy is that

Which of the following statements about human-brain activity is true?

One major consequence of the availability heuristic is that

Fairness, according to behavioral economics,

Which of the following sets of personal characteristics best reflects what behavioral economists assume about how people make decisions?

The persistence of some "urban legends" and some myths is a reflection of the

Behavioral economics observes that people generally do not act according to their self-interest.

What do neoclassical economics and behavioral economics believe about giving people options?

The dictator game and ultimatum game are experiments that have provided field evidence for

When someone tries to "multitask" despite mounting evidence that multitasking is actually inefficient, this illustrates

Thea committed a traffic violation that resulted in an accident.She learns first that the violation will result in a $500 fine; she then learns that she will have to pay another $500 for damage caused in the accident.According to prospect theory,

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

Utility Maximization

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, Rd, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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