Question 1

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 2

Results of the ultimatum game

Accepted Answer

A) affirm the metaphor of the invisible hand. 
B) contradict the metaphor of the invisible hand. 
C) demonstrate that markets are generally inefficient. 
D) suggest that governments are unnecessary. 
A) affirm the metaphor of the invisible hand. 
B) contradict the metaphor of the invisible hand. 
C) demonstrate that markets are generally inefficient. 
D) suggest that governments are unnecessary.

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

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 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

Alex was willing to pay $50 for the new World Cup soccer ball. When he received it as a gift, he was willing to sell it, but for no less than $80. According to behavioral economists,

Accepted Answer

A) Alex's behavior is consistent with the endowment effect. 
B) Alex's behavior is irrational because of inconsistent anchoring. 
C) Alex should sell the ball if he's offered any amount over $50. 
D) Alex's behavior is irrational because his frame has changed. 
A) Alex's behavior is consistent with the endowment effect. 
B) Alex's behavior is irrational because of inconsistent anchoring. 
C) Alex should sell the ball if he's offered any amount over $50. 
D) Alex's behavior is irrational because his frame has changed.

Question 7

Explain the phenomenon of anchoring.

Accepted Answer

Anchoring is the tendency people have to

Question 8

Neoclassical economics and behavioral economics

Accepted Answer

A) are generally viewed as complementary, together providing better understanding of economic behavior than each could on its own. 
B) are diametrically opposed to each other. 
C) generally address different issues in economics and therefore rarely intersect on the same topic. 
D) both start from the premise that people are fundamentally rational in their decision making. 
A) are generally viewed as complementary, together providing better understanding of economic behavior than each could on its own. 
B) are diametrically opposed to each other. 
C) generally address different issues in economics and therefore rarely intersect on the same topic. 
D) both start from the premise that people are fundamentally rational in their decision making.

Question 9

Which of the following individuals least likely suffers from myopia?

Accepted Answer

A) Marilyn, who struggles to lose weight because she regularly cheats on her diet. 
B) Myrna, who lived through the Great Depression and tends to spend frugally and save most of her money. 
C) Malcolm, who currently spends all his income and saves nothing for retirement. 
D) Marvin, who regularly sleeps in and is constantly late for work, much to the chagrin of his boss. 
A) Marilyn, who struggles to lose weight because she regularly cheats on her diet. 
B) Myrna, who lived through the Great Depression and tends to spend frugally and save most of her money. 
C) Malcolm, who currently spends all his income and saves nothing for retirement. 
D) Marvin, who regularly sleeps in and is constantly late for work, much to the chagrin of his boss.

Question 10

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 11

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 12

Huxley lost $100 in the stock market. According to behavioral economics research, how much of a gain would he have to experience to offset the feeling of loss and have no net change in utility?

Accepted Answer

A) $100 
B) $250 
C) $40 
D) $150 
A) $100 
B) $250 
C) $40 
D) $150

Question 13

Behavioral economics attempts to make better predictions about human behavior by combining insights from the following fields, except

Accepted Answer

A) economics. 
B) biology. 
C) physics. 
D) psychology. 
A) economics. 
B) biology. 
C) physics. 
D) psychology.

Question 14

According to prospect theory, firms are more likely to shrink packages than raise prices because

Accepted Answer

A) consumers feel the loss of a price increase more than they feel the loss of buying a smaller package for their money. 
B) they don't understand that consumers recognize price increases easily, regardless of what form they take. 
C) consumers associate smaller packages with higher quality luxury goods. 
D) consumers are generally trying to downsize their purchases and lead simpler lives. 
A) consumers feel the loss of a price increase more than they feel the loss of buying a smaller package for their money. 
B) they don't understand that consumers recognize price increases easily, regardless of what form they take. 
C) consumers associate smaller packages with higher quality luxury goods. 
D) consumers are generally trying to downsize their purchases and lead simpler lives.

Question 15

When students end up doing "all-nighters" just to finish a term paper, it illustrates 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 16

For economists, "myopia" refers to

Accepted Answer

A) visual nearsightedness. 
B) people's difficulty in conceptualizing the future. 
C) people's tendency to put too much emphasis on the future and ignore important present concerns. 
D) people's tendency to focus on microeconomic concerns because of an inability to conceptualize macroeconomics. 
A) visual nearsightedness. 
B) people's difficulty in conceptualizing the future. 
C) people's tendency to put too much emphasis on the future and ignore important present concerns. 
D) people's tendency to focus on microeconomic concerns because of an inability to conceptualize macroeconomics.

Question 17

Explain how individuals can fight self-control problems by making precommitments.

Accepted Answer

Precommitments are actions taken ahead o

Question 18

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 19

Tony ran a marathon in 3.6 hours; his performance last year on the same course was 3.3 hours. Stacey ran the same marathon in 3.6 hours; her previous time was 3.8 hours. According to behavioral economists, and based solely on the information given, we would expect

Accepted Answer

A) Tony to feel good about his performance, and Stacey to feel good about hers. 
B) Tony to feel bad about his performance, and Stacey to feel good about hers. 
C) Tony to feel bad about his performance, and Stacey to feel bad about hers. 
D) Tony to feel good about his performance, and Stacey to feel bad about hers. 
A) Tony to feel good about his performance, and Stacey to feel good about hers. 
B) Tony to feel bad about his performance, and Stacey to feel good about hers. 
C) Tony to feel bad about his performance, and Stacey to feel bad about hers. 
D) Tony to feel good about his performance, and Stacey to feel bad about hers.

Question 20

Define fairness. Is there evidence that fairness is important to people?

Accepted Answer

Fairness is a person's opinion as to whe

Exam 8: Behavioral Economics

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

Results of the ultimatum game

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

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

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

Alex was willing to pay $50 for the new World Cup soccer ball. When he received it as a gift, he was willing to sell it, but for no less than $80. According to behavioral economists,

Explain the phenomenon of anchoring.

Neoclassical economics and behavioral economics

Which of the following individuals least likely suffers from myopia?

According to the "endowment effect,"

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

Huxley lost $100 in the stock market. According to behavioral economics research, how much of a gain would he have to experience to offset the feeling of loss and have no net change in utility?

Behavioral economics attempts to make better predictions about human behavior by combining insights from the following fields, except

According to prospect theory, firms are more likely to shrink packages than raise prices because

When students end up doing "all-nighters" just to finish a term paper, it illustrates the

For economists, "myopia" refers to

Explain how individuals can fight self-control problems by making precommitments.

Tony ran a marathon in 3.6 hours; his performance last year on the same course was 3.3 hours. Stacey ran the same marathon in 3.6 hours; her previous time was 3.8 hours. According to behavioral economists, and based solely on the information given, we would expect

Define fairness. Is there evidence that fairness is important to people?

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