Question 1

The self-serving bias causes people to act only in their self-interest.

Accepted Answer

A) True 
 B)False

Question 2

People's tendency to prefer the "default" option over other options is known in prospect theory as

Accepted Answer

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

Question 3

Behavioral economic theories are developed based on the following, except

Accepted Answer

A) assuming that people always make rational decisions and choices. 
B) observing people's actual behavior, including irrational behavior. 
C) trying to explain people's tendency to make systematic errors in certain situations. 
D) dropping the neoclassical assumption that people are fundamentally rational. 
A) assuming that people always make rational decisions and choices. 
B) observing people's actual behavior, including irrational behavior. 
C) trying to explain people's tendency to make systematic errors in certain situations. 
D) dropping the neoclassical assumption that people are fundamentally rational.

Question 4

One major consequence of the framing effect is that

Accepted Answer

A) people may spend more 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) decision makers may make faulty decisions if they are lulled by the environment in which they are making their decisions. 
A) people may spend more 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) decision makers may make faulty decisions if they are lulled by the environment in which they are making their decisions.

Question 5

Neoclassical economics and behavioral economics disagree on the following assumptions, except

Accepted Answer

A) rationality of people. 
B) determinants of market prices. 
C) stability of people's preferences. 
D) strength of people's willpower. 
A) rationality of people. 
B) determinants of market prices. 
C) stability of people's preferences. 
D) strength of people's willpower.

Question 6

The presence of framing effects influences how sellers present their products to consumers.

Accepted Answer

A) True 
 B)False

Question 7

Balin purchases fair trade cocoa out of concern for workers' rights and environmental sustainability.He could purchase cocoa of equal quality at a lower price.Behavioral economists would consider Balin's purchase

Accepted Answer

A) unusual in that it demonstrates concern for others. 
B) purely self-interested but motivated by something other than his financial well-being. 
C) as evidence that Balin is not acting purely in his self-interest. 
D) a bad decision because it ignores important information that could improve Balin's well-being. 
A) unusual in that it demonstrates concern for others. 
B) purely self-interested but motivated by something other than his financial well-being. 
C) as evidence that Balin is not acting purely in his self-interest. 
D) a bad decision because it ignores important information that could improve Balin's well-being.

Question 8

A company has designed an alarm clock that "runs and hides" after going off, forcing the person to get up and find the alarm clock if he or she wants to shut off the alarm.According to behavioral economists,

Accepted Answer

A) it is unlikely to alter people's tendency to shut off the alarm and ultimately oversleep. 
B) the alarm clock keeps people from hitting the snooze button and taking advantage of the availability heuristic. 
C) the alarm clock serves as a precommitment device, helping the user to stick to the originally planned wake-up time. 
D) overconfidence effects will discourage use of such devices. 
A) it is unlikely to alter people's tendency to shut off the alarm and ultimately oversleep. 
B) the alarm clock keeps people from hitting the snooze button and taking advantage of the availability heuristic. 
C) the alarm clock serves as a precommitment device, helping the user to stick to the originally planned wake-up time. 
D) overconfidence effects will discourage use of such devices.

Question 9

Which of the following is a key difference between the dictator game and the ultimatum game?

Accepted Answer

A) The dictator game is played with real money; the ultimatum game is played with hypothetical money. 
B) In the dictator game, one person has total control over the split; in the ultimatum game, both players have to agree to the split. 
C) Results of dictator game experiments reveal that people don't care about fairness; results of the ultimatum game indicate that they do care. 
D) There is no difference between them; they are simply different names for the same game. 
A) The dictator game is played with real money; the ultimatum game is played with hypothetical money. 
B) In the dictator game, one person has total control over the split; in the ultimatum game, both players have to agree to the split. 
C) Results of dictator game experiments reveal that people don't care about fairness; results of the ultimatum game indicate that they do care. 
D) There is no difference between them; they are simply different names for the same game.

Question 10

Why do credit card companies typically require small minimum payment amounts on their customers' monthly credit card statements?

Accepted Answer

A) Credit card companies are concerned that their customers will be put in financial distress if required to make higher payments. 
B) Credit card companies want to promote faster repayment, and customers will be encouraged to pay more each month if they're able to pay well beyond the minimum. 
C) Credit card companies want to increase profits by promoting slower repayment, and actual customer payments will be anchored by the smaller payment requirements. 
D) Credit card companies actually charge the highest minimum payment they are allowed by law to charge. 
A) Credit card companies are concerned that their customers will be put in financial distress if required to make higher payments. 
B) Credit card companies want to promote faster repayment, and customers will be encouraged to pay more each month if they're able to pay well beyond the minimum. 
C) Credit card companies want to increase profits by promoting slower repayment, and actual customer payments will be anchored by the smaller payment requirements. 
D) Credit card companies actually charge the highest minimum payment they are allowed by law to charge.

Question 11

Which of the following is not an implication of hardwired heuristics?

Accepted Answer

A) Getting people to make positive behavioral changes is about putting them in situations where heuristics kick in and lead them to the desired outcome. 
B) Getting people to make better decisions is simply a matter of providing more information and more options. 
C) People who know and understand hardwired tendencies of others can take advantage of situations. 
D) Even when confronted with irrefutable information that a behavior is detrimental, people still may not change what they're doing. 
A) Getting people to make positive behavioral changes is about putting them in situations where heuristics kick in and lead them to the desired outcome. 
B) Getting people to make better decisions is simply a matter of providing more information and more options. 
C) People who know and understand hardwired tendencies of others can take advantage of situations. 
D) Even when confronted with irrefutable information that a behavior is detrimental, people still may not change what they're doing.

Question 12

Last month Laura saw the value of her stock portfolio rise by $20,000.This month she saw the value of her portfolio decline by $20,000.According to behavioral economics,

Accepted Answer

A) the positive utility Laura received from seeing her portfolio value rise was equal to the disutility she felt when its value declined. 
B) Laura should not invest in stocks unless the utility she receives from gains is at least as great as the disutility she feels from losses. 
C) the positive utility Laura received from seeing her portfolio value rise was greater than the disutility she felt when its value declined. 
D) the positive utility Laura received from seeing her portfolio value rise was less than the disutility she felt when its value declined. 
A) the positive utility Laura received from seeing her portfolio value rise was equal to the disutility she felt when its value declined. 
B) Laura should not invest in stocks unless the utility she receives from gains is at least as great as the disutility she feels from losses. 
C) the positive utility Laura received from seeing her portfolio value rise was greater than the disutility she felt when its value declined. 
D) the positive utility Laura received from seeing her portfolio value rise was less than the disutility she felt when its value declined.

Question 13

Dictators/proposers tend to act more self-interested when playing the dictator game versus the ultimatum game.

Accepted Answer

A) True 
 B)False

Question 14

When people change their decision just because the context of the given information is changed, we call that the "framing effect."

Accepted Answer

A) True 
 B)False

Question 15

People's tendency to prefer something that will yield immediate benefits over something whose benefits come later is called what by behavioral economists?

Accepted Answer

A) myopia 
B) mental accounting 
C) anchoring 
D) framing 
A) myopia 
B) mental accounting 
C) anchoring 
D) framing

Question 16

So-called precommitments are effective ways of fighting

Accepted Answer

A) framing effects. 
B) mental accounting. 
C) anchoring. 
D) self-control problems. 
A) framing effects. 
B) mental accounting. 
C) anchoring. 
D) self-control problems.

Question 17

When people base their estimates of the likelihood of an event on how often they've heard of such an event, they illustrate 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 18

The overconfidence effect exists when people underestimate their chances of being wrong.

Accepted Answer

A) True 
 B)False

Question 19

Neoclassical economic models make simplifying assumptions about people's rationality and preferences for the following reasons, except

Accepted Answer

A) these assumptions make the models mathematically elegant. 
B) these assumptions allow the models to be conveniently solved mathematically. 
C) these assumptions allow the models to generate quite precise predictions of behavior. 
D) these assumptions allow the models to generate quite accurate predictions of behavior. 
A) these assumptions make the models mathematically elegant. 
B) these assumptions allow the models to be conveniently solved mathematically. 
C) these assumptions allow the models to generate quite precise predictions of behavior. 
D) these assumptions allow the models to generate quite accurate predictions of behavior.

Question 20

According to behavioral economics, the difficulty among many people to stick to a diet or an exercise plan is partly explained by

Accepted Answer

A) myopia. 
B) mental accounting. 
C) anchoring. 
D) framing. 
A) myopia. 
B) mental accounting. 
C) anchoring. 
D) framing.

Exam 8: Behavioral Economics

The self-serving bias causes people to act only in their self-interest.

People's tendency to prefer the "default" option over other options is known in prospect theory as

Behavioral economic theories are developed based on the following, except

One major consequence of the framing effect is that

Neoclassical economics and behavioral economics disagree on the following assumptions, except

The presence of framing effects influences how sellers present their products to consumers.

Balin purchases fair trade cocoa out of concern for workers' rights and environmental sustainability.He could purchase cocoa of equal quality at a lower price.Behavioral economists would consider Balin's purchase

A company has designed an alarm clock that "runs and hides" after going off, forcing the person to get up and find the alarm clock if he or she wants to shut off the alarm.According to behavioral economists,

Which of the following is a key difference between the dictator game and the ultimatum game?

Why do credit card companies typically require small minimum payment amounts on their customers' monthly credit card statements?

Which of the following is not an implication of hardwired heuristics?

Last month Laura saw the value of her stock portfolio rise by $20,000.This month she saw the value of her portfolio decline by $20,000.According to behavioral economics,

Dictators/proposers tend to act more self-interested when playing the dictator game versus the ultimatum game.

When people change their decision just because the context of the given information is changed, we call that the "framing effect."

People's tendency to prefer something that will yield immediate benefits over something whose benefits come later is called what by behavioral economists?

So-called precommitments are effective ways of fighting

When people base their estimates of the likelihood of an event on how often they've heard of such an event, they illustrate the

The overconfidence effect exists when people underestimate their chances of being wrong.

Neoclassical economic models make simplifying assumptions about people's rationality and preferences for the following reasons, except

According to behavioral economics, the difficulty among many people to stick to a diet or an exercise plan is partly explained by

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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