Question 1

The following are major observations made by behavioral economists regarding human behavior, except

Accepted Answer

A) workers tend to spend and consume too much in the present, thus not saving enough for retirement. 
B) people tend to stick with the default option when faced with various alternatives. 
C) people behave in ways that seem irrational at first glance, but are really rational. 
D) people often intentionally act in irrational ways. 
A) workers tend to spend and consume too much in the present, thus not saving enough for retirement. 
B) people tend to stick with the default option when faced with various alternatives. 
C) people behave in ways that seem irrational at first glance, but are really rational. 
D) people often intentionally act in irrational ways.

Question 2

When ordinarily neat people tend to litter in areas that are covered with graffiti, they illustrate the

Accepted Answer

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

Question 3

The tendency of people to believe that something they own is more valuable than an identical item that they do not own is known in prospect theory as the

Accepted Answer

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

Question 4

When Lucian starts his new job, he is given the option to contribute to his retirement fund, which the company will match up to 5 percent of his base salary.Lucian knows he can afford to contribute to his retirement fund; he only needs to file a form to activate the contributions and matching.According to prospect theory, if Lucian is typical in his behavior, we would expect him to

Accepted Answer

A) take full advantage of the matching contribution because that would maximize his financial well-being. 
B) not file the form to start the contribution and match. 
C) negotiate with his boss for a higher match in order to increase his returns. 
D) only start contributions if the retirement portfolio is heavily weighted in high-return assets. 
A) take full advantage of the matching contribution because that would maximize his financial well-being. 
B) not file the form to start the contribution and match. 
C) negotiate with his boss for a higher match in order to increase his returns. 
D) only start contributions if the retirement portfolio is heavily weighted in high-return assets.

Question 5

One major tenet of behavioral economics is that the human brain is prone to commit errors in perception.

Accepted Answer

A) True 
 B)False

Question 6

According to behavioral economics, the difficulty among many people to sufficiently save for their retirement is partly explained by

Accepted Answer

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

Question 7

Framing effects in prospect theory indicate that a given result, such as "an investment return of 10 percent,"

Accepted Answer

A) will be definitely viewed as a gain, because a loss would be a negative return. 
B) can be viewed as either a gain or a loss, depending on the context. 
C) will always increase the happiness of the investor. 
D) will change satisfaction to an equal but opposite degree as a negative 10 percent return. 
A) will be definitely viewed as a gain, because a loss would be a negative return. 
B) can be viewed as either a gain or a loss, depending on the context. 
C) will always increase the happiness of the investor. 
D) will change satisfaction to an equal but opposite degree as a negative 10 percent return.

Question 8

Cognitive biases are the result of

Accepted Answer

A) heuristics used in the deliberative processes of the human brain. 
B) heuristics used in the intuitive processes of the human brain. 
C) deliberative processes of the human brain taking over the intuitive ones. 
D) the conflict between the older part and the newer part of the human brain. 
A) heuristics used in the deliberative processes of the human brain. 
B) heuristics used in the intuitive processes of the human brain. 
C) deliberative processes of the human brain taking over the intuitive ones. 
D) the conflict between the older part and the newer part of the human brain.

Question 9

Which of the following statements is most accurate about human brain modularity?

Accepted Answer

A) System 1 uses heuristics, while system 2 is more calculating; both are equally important in decision making. 
B) Both systems regularly use both heuristics and conscious calculations; both are equally important in decision making. 
C) System 1 uses heuristics, while system 2 is more calculating; system 2 regularly overcomes system 1's heuristics to make decisions. 
D) System 1 uses heuristics, while system 2 is more calculating; most decisions are made by system 1. 
A) System 1 uses heuristics, while system 2 is more calculating; both are equally important in decision making. 
B) Both systems regularly use both heuristics and conscious calculations; both are equally important in decision making. 
C) System 1 uses heuristics, while system 2 is more calculating; system 2 regularly overcomes system 1's heuristics to make decisions. 
D) System 1 uses heuristics, while system 2 is more calculating; most decisions are made by system 1.

Question 10

Selfishness is

Accepted Answer

A) exhibited more strongly in the ultimatum game than in the dictator game. 
B) exhibited more strongly in the dictator game than in the ultimatum game. 
C) exhibited equally strongly in both the ultimatum and dictator games. 
D) rarely exhibited in either the ultimatum or dictator games. 
A) exhibited more strongly in the ultimatum game than in the dictator game. 
B) exhibited more strongly in the dictator game than in the ultimatum game. 
C) exhibited equally strongly in both the ultimatum and dictator games. 
D) rarely exhibited in either the ultimatum or dictator games.

Question 11

The dictator game

Accepted Answer

A) reveals nothing important about economic behavior because the money used is hypothetical. 
B) demonstrates that people care about fairness and will sacrifice financially for others. 
C) demonstrates nothing definitive about fairness, as concerns about the other player's perceptions will influence the dictator's choices. 
D) regularly results in the dictator taking all of the money for him/herself, as economic theory would predict. 
A) reveals nothing important about economic behavior because the money used is hypothetical. 
B) demonstrates that people care about fairness and will sacrifice financially for others. 
C) demonstrates nothing definitive about fairness, as concerns about the other player's perceptions will influence the dictator's choices. 
D) regularly results in the dictator taking all of the money for him/herself, as economic theory would predict.

Question 12

Which of the following facts is not a basis for prospect theory in behavioral economics?

Accepted Answer

A) People evaluate gains and losses in relation to the status quo, not in absolute terms. 
B) People feel losses much more intensely than they feel gains. 
C) People experience diminishing marginal disutility for losses. 
D) People do not experience diminishing marginal utility for gains. 
A) People evaluate gains and losses in relation to the status quo, not in absolute terms. 
B) People feel losses much more intensely than they feel gains. 
C) People experience diminishing marginal disutility for losses. 
D) People do not experience diminishing marginal utility for gains.

Question 13

Junior collects baseball cards.He owns one Felix Hernandez card that sells in most shops for $15.He is interested in buying a different Felix card that also sells for $15.According to behavioral economics,

Accepted Answer

A) Junior should value the two cards equally and be willing to trade one for the other. 
B) the availability heuristic will cause Junior to value more highly the card he doesn't have. 
C) the endowment effect would suggest that Junior would not be willing to trade the card he has for the card he doesn't have. 
D) prospect theory says he will buy the second card, as both have the potential to appreciate in value. 
A) Junior should value the two cards equally and be willing to trade one for the other. 
B) the availability heuristic will cause Junior to value more highly the card he doesn't have. 
C) the endowment effect would suggest that Junior would not be willing to trade the card he has for the card he doesn't have. 
D) prospect theory says he will buy the second card, as both have the potential to appreciate in value.

Question 14

One major point of disagreement between neoclassical economics and behavioral economics is the assumption of rationality.

Accepted Answer

A) True 
 B)False

Question 15

Hardwired heuristics make it easy to change behavior by simply presenting people with better information.

Accepted Answer

A) True 
 B)False

Question 16

Heuristics help people make faster, error-free decisions.

Accepted Answer

A) True 
 B)False

Question 17

Adam and Brittany both recently started new jobs.Both have determined that they should save 10 percent of their monthly income toward retirement.Adam's employer has no program established for payroll deduction, but he could easily set up automatic withdrawals to go into a retirement fund.Brittany's employer automatically directs 8 percent of the paycheck into a retirement fund, but the employee can change the percentage deducted.Behavioral economists would expect

Accepted Answer

A) Adam to save more, as he would set up a 10 percent automatic withdrawal, while Brittany would stay at the default of 8 percent. 
B) Brittany to save more, as both would tend to stay at the defaults provided by their employers. 
C) them both to save 10 percent eventually, as both had predetermined that that was the optimal amount to save. 
D) Brittany to feel a greater sense of loss by seeing funds automatically withheld each month. 
A) Adam to save more, as he would set up a 10 percent automatic withdrawal, while Brittany would stay at the default of 8 percent. 
B) Brittany to save more, as both would tend to stay at the defaults provided by their employers. 
C) them both to save 10 percent eventually, as both had predetermined that that was the optimal amount to save. 
D) Brittany to feel a greater sense of loss by seeing funds automatically withheld each month.

Question 18

One important consequence of the self-serving 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

Key features of so-called nudges include the following, except that

Accepted Answer

A) they are subtle. 
B) they induce changes in behavior without bullying or coercion. 
C) they involve significant monetary incentives. 
D) they can be viewed by some as manipulation. 
A) they are subtle. 
B) they induce changes in behavior without bullying or coercion. 
C) they involve significant monetary incentives. 
D) they can be viewed by some as manipulation.

Question 20

According to behavioral economics,

Accepted Answer

A) gains are felt more intensely than losses. 
B) each successive unit of loss is equal in its marginal disutility. 
C) each successive unit of loss hurts, but less than the previous unit. 
D) each successive unit of loss hurts, and more than the previous unit. 
A) gains are felt more intensely than losses. 
B) each successive unit of loss is equal in its marginal disutility. 
C) each successive unit of loss hurts, but less than the previous unit. 
D) each successive unit of loss hurts, and more than the previous unit.

Exam 8: Behavioral Economics

The following are major observations made by behavioral economists regarding human behavior, except

When ordinarily neat people tend to litter in areas that are covered with graffiti, they illustrate the

The tendency of people to believe that something they own is more valuable than an identical item that they do not own is known in prospect theory as the

One major tenet of behavioral economics is that the human brain is prone to commit errors in perception.

According to behavioral economics, the difficulty among many people to sufficiently save for their retirement is partly explained by

Framing effects in prospect theory indicate that a given result, such as "an investment return of 10 percent,"

Cognitive biases are the result of

Which of the following statements is most accurate about human brain modularity?

Selfishness is

The dictator game

Which of the following facts is not a basis for prospect theory in behavioral economics?

Junior collects baseball cards.He owns one Felix Hernandez card that sells in most shops for $15.He is interested in buying a different Felix card that also sells for $15.According to behavioral economics,

One major point of disagreement between neoclassical economics and behavioral economics is the assumption of rationality.

Hardwired heuristics make it easy to change behavior by simply presenting people with better information.

Heuristics help people make faster, error-free decisions.

One important consequence of the self-serving bias is that

Key features of so-called nudges include the following, except that

According to behavioral economics,

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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