Question 1

The "anchoring" phenomenon observed by behavioral economists refers to the fact that people's estimates of the value of things are affected by

Accepted Answer

A) recently considered information. 
B) their childhood memories. 
C) irrelevant data always. 
D) relevant information solely. 
A) recently considered information. 
B) their childhood memories. 
C) irrelevant data always. 
D) relevant information solely.

Question 2

Which of the following statements best reflects how a behavioral economist views individual decision making?

Accepted Answer

A) Alex makes wrong decisions sometimes, but usually it is only when he has been given bad information. 
B) Kara carefully calculates and weighs the expected benefits and costs of every option before making a decision. 
C) Alyssa may appear to care about others, but even her seemingly altruistic behaviors are really about furthering her own interests. 
D) Balin tries to make good, well-thought-out decisions, but his desire for utility in the present means that he often gives in to costly temptations. 
A) Alex makes wrong decisions sometimes, but usually it is only when he has been given bad information. 
B) Kara carefully calculates and weighs the expected benefits and costs of every option before making a decision. 
C) Alyssa may appear to care about others, but even her seemingly altruistic behaviors are really about furthering her own interests. 
D) Balin tries to make good, well-thought-out decisions, but his desire for utility in the present means that he often gives in to costly temptations.

Question 3

Behavioral economics hopes to eventually fully replace the neoclassical economic model.

Accepted Answer

A) True 
 B)False

Question 4

In the face of rising costs, some firms reduce the quality of the goods they produce rather than maintain quality and increase prices. How would behavioral economics explain this strategy?

Accepted Answer

A) People have an aversion to losses, and consumers are more likely to feel the loss of a price increase than a quality reduction. 
B) Consumers are more tolerant of diminished quality because diminishing marginal utility causes people to get rid of goods sooner than in the past. 
C) Firms are myopic in their decision making, with little regard for future profitability. 
D) The availability heuristic will cause people to buy whatever is offered, regardless of the quality. 
A) People have an aversion to losses, and consumers are more likely to feel the loss of a price increase than a quality reduction. 
B) Consumers are more tolerant of diminished quality because diminishing marginal utility causes people to get rid of goods sooner than in the past. 
C) Firms are myopic in their decision making, with little regard for future profitability. 
D) The availability heuristic will cause people to buy whatever is offered, regardless of the quality.

Question 5

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 6

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 errors, 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 errors, 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 7

Behavioral economics demonstrates that the threat of rejection makes people less likely to engage in transactions.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

The many quirky decisions that people often make, which behavioral economics have found and analyzed, are so ingrained in the human psyche that there is nothing that policymakers can do about helping people make better choices for themselves.

Accepted Answer

A) True 
 B)False

Question 10

Fatal automobile accidents occur much more frequently than do fatal airplane crashes, yet airplane crashes receive a disproportionate amount of media coverage. As a result, some people are overly fearful of flying in planes yet have no problem riding in cars. Which of the following cognitive biases best explains this disconnect between these people's fears and the statistical realities?

Accepted Answer

A) overconfidence effect 
B) availability heuristic 
C) self-serving bias 
D) confirmation bias 
A) overconfidence effect 
B) availability heuristic 
C) self-serving bias 
D) confirmation bias

Question 11

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 12

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 13

Because of "mental accounting,"

Accepted Answer

A) people are better able to process price changes than changes in product sizes. 
B) people tend to be less risk averse. 
C) people pay too little on their monthly credit card bills. 
D) people isolate purchases and sometimes make irrational decisions. 
A) people are better able to process price changes than changes in product sizes. 
B) people tend to be less risk averse. 
C) people pay too little on their monthly credit card bills. 
D) people isolate purchases and sometimes make irrational decisions.

Question 14

Sellers' sense of fairness is always consistent with the notion of rational self-interest of neoclassical economics.

Accepted Answer

A) True 
 B)False

Question 15

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 based on irrelevant information. 
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 based on irrelevant information. 
D) some people may wrongly believe in their forecasting ability to predict future outcomes of risky investments.

Question 16

What is the ultimatum game?

Accepted Answer

The ultimatum game has two players, the

Question 17

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.

Question 18

What are the two categories of cognitive biases identified by behavioral economists?

Accepted Answer

A) unevolved capacity for solving modern problems and faulty heuristics 
B) bad information and lack of impulse control 
C) lack of intellect and mental disorders 
D) inability to reason and inability to delay gratification 
A) unevolved capacity for solving modern problems and faulty heuristics 
B) bad information and lack of impulse control 
C) lack of intellect and mental disorders 
D) inability to reason and inability to delay gratification

Question 19

Specialty shops can charge and get customers to pay higher prices for identical goods than they would pay in "big box" stores. Assuming that these differences are driven by store appearance rather than differences in services provided, which of the following best explains this phenomenon?

Accepted Answer

A) availability heuristics 
B) framing effects 
C) confirmation biases 
D) self-serving biases 
A) availability heuristics 
B) framing effects 
C) confirmation biases 
D) self-serving biases

Question 20

Suppose Justine and Sarah are playing the ultimatum game. Justine is the proposer, has $200 to allocate, and Sarah can accept or reject the offer. Based on repeated experiments of the ultimatum game, what combination of payouts to Justine and Sarah is most likely to occur?

Accepted Answer

A) $200 for Justine and $0 for Sarah 
B) $102 for Justine and $98 for Sarah 
C) $158 for Justine and $42 for Sarah 
D) $0 for Justine and $200 for Sarah 
A) $200 for Justine and $0 for Sarah 
B) $102 for Justine and $98 for Sarah 
C) $158 for Justine and $42 for Sarah 
D) $0 for Justine and $200 for Sarah

Exam 8: Behavioral Economics

The "anchoring" phenomenon observed by behavioral economists refers to the fact that people's estimates of the value of things are affected by

Which of the following statements best reflects how a behavioral economist views individual decision making?

Behavioral economics hopes to eventually fully replace the neoclassical economic model.

In the face of rising costs, some firms reduce the quality of the goods they produce rather than maintain quality and increase prices. How would behavioral economics explain this strategy?

According to behavioral economics, advertising works because it

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

Behavioral economics demonstrates that the threat of rejection makes people less likely to engage in transactions.

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

The many quirky decisions that people often make, which behavioral economics have found and analyzed, are so ingrained in the human psyche that there is nothing that policymakers can do about helping people make better choices for themselves.

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

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

Because of "mental accounting,"

Sellers' sense of fairness is always consistent with the notion of rational self-interest of neoclassical economics.

One major consequence of the overconfidence effect is that

What is the ultimatum game?

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

What are the two categories of cognitive biases identified by behavioral economists?

Specialty shops can charge and get customers to pay higher prices for identical goods than they would pay in "big box" stores. Assuming that these differences are driven by store appearance rather than differences in services provided, which of the following best explains this phenomenon?

Suppose Justine and Sarah are playing the ultimatum game. Justine is the proposer, has $200 to allocate, and Sarah can accept or reject the offer. Based on repeated experiments of the ultimatum game, what combination of payouts to Justine and Sarah is most likely to occur?

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, 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

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

Filters