Question 1

Neoclassical and behavioral economics are generally viewed as complementary.

Accepted Answer

A) True 
 B)False

Question 2

According to behavioral economics, one major cause of self-control problems (such as strictly following through on "new year's resolutions") is

Accepted Answer

A) time inconsistency. 
B) mental accounting. 
C) anchoring. 
D) framing. 
A) time inconsistency. 
B) mental accounting. 
C) anchoring. 
D) framing.

Question 3

Isolating transactions from the overall set of consumption options is known as anchoring.

Accepted Answer

A) True 
 B)False

Question 4

High-end retailers spend a lot on architecture, displays, and packaging in order to take advantage of the

Accepted Answer

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

Question 5

Neoclassical economics focuses on predicting the behavior of economic agents, whereas behavioral economics focuses on the mental processes involved in decision making.

Accepted Answer

A) True 
 B)False

Question 6

The ultimatum game reveals that the threat of rejection

Accepted Answer

A) weakens the functioning of the invisible hand. 
B) reduces cooperation. 
C) increases selfish behavior. 
D) helps align private interests with social interests. 
A) weakens the functioning of the invisible hand. 
B) reduces cooperation. 
C) increases selfish behavior. 
D) helps align private interests with social interests.

Question 7

Behavioral economists suggest that the reason wh y many consumers tend to stick to one brand in things that they often buy, like food items, is people's tendency to have the

Accepted Answer

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

Question 8

When people believe murder is a more common cause of death than stomach cancer is, it illustrates the

Accepted Answer

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

Question 9

Fred just purchased an expensive new refrigerator and is considering purchasing the overpriced warranty.In making his decision on the warranty, Fred ignores better ways that his money could be spent, including paying off high-interest credit card debt.According to prospect theory, the process that leads Fred to ignore the debt and buy the overpriced warranty is

Accepted Answer

A) framing bias. 
B) anchoring. 
C) mental accounting. 
D) confirmation bias. 
A) framing bias. 
B) anchoring. 
C) mental accounting. 
D) confirmation bias.

Question 10

According to behavioral economists, the human brain

Accepted Answer

A) makes most decisions based on careful calculation of benefits and costs. 
B) uses evolutionary-developed heuristics to make many decisions. 
C) only develops heuristics for decision making after the same decision has been made multiple times using a rational framework of comparing benefits and costs. 
D) employs heuristics in decision making that are slow but generally error free. 
A) makes most decisions based on careful calculation of benefits and costs. 
B) uses evolutionary-developed heuristics to make many decisions. 
C) only develops heuristics for decision making after the same decision has been made multiple times using a rational framework of comparing benefits and costs. 
D) employs heuristics in decision making that are slow but generally error free.

Question 11

"Nudging" is the term used to refer to making people make better choices for themselves, using lessons about human behavior which economists have learned from

Accepted Answer

A) neoclassical theory. 
B) purely competitive markets. 
C) marginal analysis. 
D) behavioral economics. 
A) neoclassical theory. 
B) purely competitive markets. 
C) marginal analysis. 
D) behavioral economics.

Question 12

(Last Word) "Nudges" refer to

Accepted Answer

A) subtle changes in policies or practices that result in large behavioral changes. 
B) legal changes made without much publicity that require significant changes in behavior. 
C) coercion by governmental authorities. 
D) changes in endowments that significantly alter behavior. 
A) subtle changes in policies or practices that result in large behavioral changes. 
B) legal changes made without much publicity that require significant changes in behavior. 
C) coercion by governmental authorities. 
D) changes in endowments that significantly alter behavior.

Question 13

The facts that many people give to charity and that most people obey the law regardless of whether someone is watching or not, are 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 14

Prospect theory would suggest that

Accepted Answer

A) buyers would feel the "loss" due to an increase in the price of something they buy more than the "gain" they'd feel if the price fell by an equal amount. 
B) buyers would feel the "loss" due to an increase in the price of something they buy less than the "gain" they'd feel if the price fell by an equal amount. 
C) buyers are more conscious about changes in the size of a chocolate bar than about changes in its price. 
D) buyers are not fooled by sellers who keep their prices constant but shrink the size of their products. 
A) buyers would feel the "loss" due to an increase in the price of something they buy more than the "gain" they'd feel if the price fell by an equal amount. 
B) buyers would feel the "loss" due to an increase in the price of something they buy less than the "gain" they'd feel if the price fell by an equal amount. 
C) buyers are more conscious about changes in the size of a chocolate bar than about changes in its price. 
D) buyers are not fooled by sellers who keep their prices constant but shrink the size of their products.

Question 15

Examples of precommitments to deal with people's time inconsistency problems include the following, except

Accepted Answer

A) automatic payroll deductions. 
B) debit card accounts. 
C) early withdrawal penalties. 
D) salar y smoothing. 
A) automatic payroll deductions. 
B) debit card accounts. 
C) early withdrawal penalties. 
D) salar y smoothing.

Question 16

When people retroactively believe that they had accurately foreseen past events, they are illustrating the

Accepted Answer

A) confirmation bias. 
B) framing effect. 
C) hindsight bias. 
D) self-serving bias. 
A) confirmation bias. 
B) framing effect. 
C) hindsight bias. 
D) self-serving bias.

Question 17

(Consider This) Kara was earning $40,000 per year.When her income rose to $60,000 per year, she enjoyed the higher level of consumption for a while, but eventually she was no more happy than when she earned $40,000 (assume prices didn't change over this time period).Economist Richard Easterlin described this as

Accepted Answer

A) anchoring. 
B) the endowment effect. 
C) irrational economic behavior. 
D) the hedonic treadmill. 
A) anchoring. 
B) the endowment effect. 
C) irrational economic behavior. 
D) the hedonic treadmill.

Question 18

One important consequence of the confirmation bias 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 19

Some economists are suggesting that we should use the insights of behavioral economics to

Accepted Answer

A) coerce people to make decisions toward improving their happiness. 
B) design elaborate rules to restrict individuals' chances of hurting themselves. 
C) nudge people toward choices that improve their welfare or that of others. 
D) provide huge monetary incentives to people to move them to action. 
A) coerce people to make decisions toward improving their happiness. 
B) design elaborate rules to restrict individuals' chances of hurting themselves. 
C) nudge people toward choices that improve their welfare or that of others. 
D) provide huge monetary incentives to people to move them to action.

Question 20

According to prospect theory, what strategy will firms typically employ with regard to pricing and packaging of their goods, when faced with rising production costs?

Accepted Answer

A) Firms will increase both package sizes and prices but will increase prices more to communicate to consumers that the product has greater value. 
B) Firms will reduce package sizes but keep prices the same, thus increasing the per unit price of the good. 
C) Firms will keep package sizes the same but lower prices and attempt to cover the higher costs with greater revenue. 
D) According to prospect theory, the choice of strategy doesn't matter, as consumers are generally able to recognize price increases regardless of what form they take. 
A) Firms will increase both package sizes and prices but will increase prices more to communicate to consumers that the product has greater value. 
B) Firms will reduce package sizes but keep prices the same, thus increasing the per unit price of the good. 
C) Firms will keep package sizes the same but lower prices and attempt to cover the higher costs with greater revenue. 
D) According to prospect theory, the choice of strategy doesn't matter, as consumers are generally able to recognize price increases regardless of what form they take.

Exam 8: Behavioral Economics

Neoclassical and behavioral economics are generally viewed as complementary.

According to behavioral economics, one major cause of self-control problems (such as strictly following through on "new year's resolutions") is

Isolating transactions from the overall set of consumption options is known as anchoring.

High-end retailers spend a lot on architecture, displays, and packaging in order to take advantage of the

Neoclassical economics focuses on predicting the behavior of economic agents, whereas behavioral economics focuses on the mental processes involved in decision making.

The ultimatum game reveals that the threat of rejection

Behavioral economists suggest that the reason wh y many consumers tend to stick to one brand in things that they often buy, like food items, is people's tendency to have the

When people believe murder is a more common cause of death than stomach cancer is, it illustrates the

According to behavioral economists, the human brain

"Nudging" is the term used to refer to making people make better choices for themselves, using lessons about human behavior which economists have learned from

(Last Word) "Nudges" refer to

The facts that many people give to charity and that most people obey the law regardless of whether someone is watching or not, are field evidence for

Prospect theory would suggest that

Examples of precommitments to deal with people's time inconsistency problems include the following, except

When people retroactively believe that they had accurately foreseen past events, they are illustrating the

One important consequence of the confirmation bias is that

Some economists are suggesting that we should use the insights of behavioral economics to

According to prospect theory, what strategy will firms typically employ with regard to pricing and packaging of their goods, when faced with rising production costs?

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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