Question 1

According to the "endowment effect,"

Accepted Answer

A) people are willing to pay more for things they don't own than they would have to receive to give up something they already have. 
B) people feel gains and losses with equal intensity. 
C) people assign higher values to things they own than things they don't. 
D) the intensity of feelings from gains and losses depends on how much wealth one possesses. 
A) people are willing to pay more for things they don't own than they would have to receive to give up something they already have. 
B) people feel gains and losses with equal intensity. 
C) people assign higher values to things they own than things they don't. 
D) the intensity of feelings from gains and losses depends on how much wealth one possesses.

Question 2

That people tend to hold on to shares of stock well past the point where it makes sense to sell those shares can be explained in part by the

Accepted Answer

A) anchoring effect. 
B) endowment effect. 
C) status quo bias. 
D) confirmation bias. 
A) anchoring effect. 
B) endowment effect. 
C) status quo bias. 
D) confirmation bias.

Question 3

According to behavioral economics, temptation to make harmful decisions can be overcome by presenting decision makers with better information and more options.

Accepted Answer

A) True 
 B)False

Question 4

Dorothy likes to invest in gold as part of her overall financial investment portfolio, as her gut tells her it will increase dramatically in value.Her favorite and generally only source of investment advice is Wizard's Gold Hour on the OZ cable channel.As a result of this advice, Dorothy's portfolio mix is suboptimal, as it is too heavily weighted in gold.Behavioral economists would say that Dorothy suffers from

Accepted Answer

A) framing effects. 
B) confirmation bias. 
C) self-serving bias. 
D) planning fallacy. 
A) framing effects. 
B) confirmation bias. 
C) self-serving bias. 
D) planning fallacy.

Question 5

One major consequence of the overconfidence effect is that

Accepted Answer

A) some people cannot correct a personal trait that might be causing them to fail in many ventures. 
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) some people cannot correct a personal trait that might be causing them to fail in many ventures. 
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 6

When gasoline at $3.60/gallon looks relatively cheap after a period of $5/gallon gas, that's an illustration of the

Accepted Answer

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

Question 7

Behavioral economists believe that the human brain is generally

Accepted Answer

A) efficient and accurate. 
B) efficient but prone to err ors. 
C) inefficient but accurate. 
D) inefficient and prone to errors. 
A) efficient and accurate. 
B) efficient but prone to err ors. 
C) inefficient but accurate. 
D) inefficient and prone to errors.

Question 8

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.Assuming Gina is interested in gaining financially from the experience and that she understands behavioral economics, we would expect her to

Accepted Answer

A) offer the same relative split ($800/$200), knowing that Henry will accept the offer because the dollar amount he would forgo by rejecting it is substantial. 
B) offer a more unequal split ($900/$100) in order to gain more for herself and figuring Henry will accept the split because $100 is better than nothing. 
C) offer a more equal split ($700/$300) to increase the probability that Henry will accept the offer. 
D) offer Henry more than half of the pot to ensure acceptance of the offer. 
A) offer the same relative split ($800/$200), knowing that Henry will accept the offer because the dollar amount he would forgo by rejecting it is substantial. 
B) offer a more unequal split ($900/$100) in order to gain more for herself and figuring Henry will accept the split because $100 is better than nothing. 
C) offer a more equal split ($700/$300) to increase the probability that Henry will accept the offer. 
D) offer Henry more than half of the pot to ensure acceptance of the offer.

Question 9

Behavioral economists believe that people can be made better off by

Accepted Answer

A) giving them more options, just like the belief of neoclassical economists. 
B) giving them more options, contrary to the belief of neoclassical economists. 
C) getting them to select better from the same set of options as they had initially. 
D) requiring them to follow an externally determined best choice among their options. 
A) giving them more options, just like the belief of neoclassical economists. 
B) giving them more options, contrary to the belief of neoclassical economists. 
C) getting them to select better from the same set of options as they had initially. 
D) requiring them to follow an externally determined best choice among their options.

Question 10

Heuristics

Accepted Answer

A) are rules of thumb that generate decisions that generally maximize net benefits. 
B) take a long time to develop and are therefore avoided by rational decision makers. 
C) are shortcuts that save time and energy in decision making. 
D) always waste mental resources by leading people to suboptimal outcomes. 
A) are rules of thumb that generate decisions that generally maximize net benefits. 
B) take a long time to develop and are therefore avoided by rational decision makers. 
C) are shortcuts that save time and energy in decision making. 
D) always waste mental resources by leading people to suboptimal outcomes.

Question 11

Augi carefully plans out an early morning exercise routine to lose weight and get fit.When it's time to work out, however, Augi just "doesn't feel up to it" and decides to sleep in.Behavioral economics would say that Augi

Accepted Answer

A) weighed the costs and benefits and made a rational economic decision to sleep in. 
B) used System 1 of her brain to formulate her workout plan, but then gave in to System 2 when she chose to sleep in. 
C) used System 2 of her brain to formulate her workout plan, but then gave in to System 1 when she chose to sleep in. 
D) is fundamentally lazy and incapable of sticking to a workout plan. 
A) weighed the costs and benefits and made a rational economic decision to sleep in. 
B) used System 1 of her brain to formulate her workout plan, but then gave in to System 2 when she chose to sleep in. 
C) used System 2 of her brain to formulate her workout plan, but then gave in to System 1 when she chose to sleep in. 
D) is fundamentally lazy and incapable of sticking to a workout plan.

Question 12

One explanation for why major construction projects often get completed way behind schedule is 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 13

The fact that specific areas of the human brain deal with specific sensations and activities like hearing, speech, and breathing is referred to as brain

Accepted Answer

A) heuristics. 
B) specificity. 
C) modularity. 
D) myopia. 
A) heuristics. 
B) specificity. 
C) modularity. 
D) myopia.

Question 14

Neoclassical economics and behavioral economics are similar in the assumption that people are capable of making accurate, sometimes complex, calculations with respect to their utility-maximizing decisions.

Accepted Answer

A) True 
 B)False

Question 15

According to behavioral economics, advertising works because it

Accepted Answer

A) provides useful information that improves consumers' ability to make decisions. 
B) exploits the self-serving bias. 
C) exploits the recognition heuristic. 
D) quickly communicates price changes that exploit the law of demand. 
A) provides useful information that improves consumers' ability to make decisions. 
B) exploits the self-serving bias. 
C) exploits the recognition heuristic. 
D) quickly communicates price changes that exploit the law of demand.

Question 16

Because neoclassical economists assume that people are rational decision makers, they

Accepted Answer

A) are able to make better predictions about economic behaviors and outcomes. 
B) ignore the mental processes by which these decisions are made. 
C) believe that people never make suboptimal decisions. 
D) believe it is best to limit the number of options people have available. 
A) are able to make better predictions about economic behaviors and outcomes. 
B) ignore the mental processes by which these decisions are made. 
C) believe that people never make suboptimal decisions. 
D) believe it is best to limit the number of options people have available.

Question 17

Heuristics generally operate in brain System 2.

Accepted Answer

A) True 
 B)False

Question 18

The low-energy mental shortcuts, or heuristics, that the human brain commonly employs is one major reason for the systematic errors in decision making that people make, which is the focus of behavioral economics.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements best reflects behavioral economists' views on self-interest versus the interests of others?

Accepted Answer

A) Self-interest dominates human behavior; even seemingly selfless behavior is driven by self-interest. 
B) Most people care so deeply about others that self-interest is a minor consideration in their decision making. 
C) The system is most efficient when people focus solely on their self-interest and allow the invisible hand to work out what is best for society. 
D) People are always self-interested to a degree, but their behavior is also affected by moral and ethical considerations. 
A) Self-interest dominates human behavior; even seemingly selfless behavior is driven by self-interest. 
B) Most people care so deeply about others that self-interest is a minor consideration in their decision making. 
C) The system is most efficient when people focus solely on their self-interest and allow the invisible hand to work out what is best for society. 
D) People are always self-interested to a degree, but their behavior is also affected by moral and ethical considerations.

Question 20

Because heuristics appear to be hardwired into the brain, the consequences include the following, except that

Accepted Answer

A) it is sometimes difficult for people to correct detrimental behaviors or routines. 
B) people may be vulnerable to others who understand their hardwired tendencies. 
C) heuristics make people consistently behave in a rational manner. 
D) people may make behavioral changes if they're exposed to a situation where a heuristic kicks in and starts driving their decision. 
A) it is sometimes difficult for people to correct detrimental behaviors or routines. 
B) people may be vulnerable to others who understand their hardwired tendencies. 
C) heuristics make people consistently behave in a rational manner. 
D) people may make behavioral changes if they're exposed to a situation where a heuristic kicks in and starts driving their decision.

Exam 8: Behavioral Economics

According to the "endowment effect,"

That people tend to hold on to shares of stock well past the point where it makes sense to sell those shares can be explained in part by the

According to behavioral economics, temptation to make harmful decisions can be overcome by presenting decision makers with better information and more options.

One major consequence of the overconfidence effect is that

When gasoline at $3.60/gallon looks relatively cheap after a period of $5/gallon gas, that's an illustration of the

Behavioral economists believe that the human brain is generally

Behavioral economists believe that people can be made better off by

Heuristics

Augi carefully plans out an early morning exercise routine to lose weight and get fit.When it's time to work out, however, Augi just "doesn't feel up to it" and decides to sleep in.Behavioral economics would say that Augi

One explanation for why major construction projects often get completed way behind schedule is the

The fact that specific areas of the human brain deal with specific sensations and activities like hearing, speech, and breathing is referred to as brain

Neoclassical economics and behavioral economics are similar in the assumption that people are capable of making accurate, sometimes complex, calculations with respect to their utility-maximizing decisions.

According to behavioral economics, advertising works because it

Because neoclassical economists assume that people are rational decision makers, they

Heuristics generally operate in brain System 2.

The low-energy mental shortcuts, or heuristics, that the human brain commonly employs is one major reason for the systematic errors in decision making that people make, which is the focus of behavioral economics.

Which of the following statements best reflects behavioral economists' views on self-interest versus the interests of others?

Because heuristics appear to be hardwired into the brain, the consequences include the following, except that

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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