Question 1

System 1 is the part of the brain that carefully weighs the benefits and costs when making decisions.

Accepted Answer

A) True 
 B)False

Question 2

According to prospect theory, people tend to favor default options. This is known as the

Accepted Answer

A) self-serving bias. 
B) availability heuristic. 
C) status quo bias. 
D) framing bias. 
A) self-serving bias. 
B) availability heuristic. 
C) status quo bias. 
D) framing bias.

Question 3

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 4

Some economists suggest 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 5

Suppose Justine and Sarah are playing the dictator game. Justine is the dictator and has $100 to allocate. Based on repeated experiments of the dictator game, what is the least likely outcome for this game?

Accepted Answer

A) $100 for Justine and $0 for Sarah. 
B) $58 for Justine and $42 for Sarah. 
C) $50 for Justine and $50 for Sarah. 
D) $0 for Justine and $100 for Sarah. 
A) $100 for Justine and $0 for Sarah. 
B) $58 for Justine and $42 for Sarah. 
C) $50 for Justine and $50 for Sarah. 
D) $0 for Justine and $100 for Sarah.

Question 6

Most people's natural aversion against complex mathematical problems is an example of

Accepted Answer

A) confirmation bias. 
B) a mental heuristic. 
C) rational choice. 
D) cognitive bias. 
A) confirmation bias. 
B) a mental heuristic. 
C) rational choice. 
D) cognitive bias.

Question 7

What behaviors are common among the players of the ultimatum game?

Accepted Answer

Two behaviors are common in the ultimatu

Question 8

Behavioral economics recognizes that people frequently make errors, but these errors generally cancel out in such a way that neoclassical models are sufficient for predicting economic outcomes.

Accepted Answer

A) True 
 B)False

Question 9

Results of the dictator and ultimatum games reveal that people act in equally self-interested ways, regardless of the context or rules of the game.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following supermarket strategies to increase sales would be most consistent with a behavioral economics (versus neoclassical economics)approach?

Accepted Answer

A) distributing online coupons 
B) providing discounts for buying in bulk 
C) positioning frequently purchased items at the back of the store 
D) offering price matching with other stores 
A) distributing online coupons 
B) providing discounts for buying in bulk 
C) positioning frequently purchased items at the back of the store 
D) offering price matching with other stores

Question 11

Sellers' sense of fairness in pricing can sometimes lead them to pricing decisions that do not maximize profits.

Accepted Answer

A) True 
 B)False

Question 12

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 13

The tendency of people to underestimate the time required to complete a task is called 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 14

Which of the following is the best example of a precommitment used to overcome time inconsistency?

Accepted Answer

A) finding a running partner and setting a regular schedule of when you will run together 
B) deciding to save a percentage of each month's paycheck 
C) signing up for a free trial membership at the local gym 
D) buying an alarm clock 
A) finding a running partner and setting a regular schedule of when you will run together 
B) deciding to save a percentage of each month's paycheck 
C) signing up for a free trial membership at the local gym 
D) buying an alarm clock

Question 15

The results of running the dictator game experiments thousands of times have revealed to behavioral economists that

Accepted Answer

A) people's sense of fairness is fairly uniform across the population. 
B) most people have little concern for others when it comes to financial matters. 
C) individual feelings about fairness and generosity vary widely across the population. 
D) most people are willing to give more than they will keep for themselves. 
A) people's sense of fairness is fairly uniform across the population. 
B) most people have little concern for others when it comes to financial matters. 
C) individual feelings about fairness and generosity vary widely across the population. 
D) most people are willing to give more than they will keep for themselves.

Question 16

"Impulse buying" is often the result of a

Accepted Answer

A) rational optimizing decision in response to incentives and prices. 
B) precise estimation of one's marginal utilities and price comparisons. 
C) systematic nonrational behavior that marketers can take advantage of. 
D) random error in a consumer's behavior that is not predictable. 
A) rational optimizing decision in response to incentives and prices. 
B) precise estimation of one's marginal utilities and price comparisons. 
C) systematic nonrational behavior that marketers can take advantage of. 
D) random error in a consumer's behavior that is not predictable.

Question 17

A key difference between neoclassical economics and behavioral economics is that in behavioral economics, context affects preferences.

Accepted Answer

A) True 
 B)False

Question 18

Dorothy likes to invest in gold as part of her overall financial investment portfolio, as her gut tells her it will increase dramatically in value. Her favorite and generally only source of investment advice is Wizard's Gold Hour on the OZ cable channel. As a result of this advice, Dorothy's portfolio mix is suboptimal, as it is too heavily weighted in gold. Behavioral economists would say that Dorothy suffers from

Accepted Answer

A) framing effects. 
B) confirmation bias. 
C) self-serving bias. 
D) planning fallacy. 
A) framing effects. 
B) confirmation bias. 
C) self-serving bias. 
D) planning fallacy.

Question 19

Carlos and Darla are playing the dictator game. Carlos is assigned the role of dictator and given $20 to split between the two of them. Based on previous experiments with this game, if Carlos is a typical player, behavioral economists would expect

Accepted Answer

A) Carlos to keep all of the money for himself. 
B) Carlos to give all of the money to Darla. 
C) Carlos to split the money evenly with Darla. 
D) Carlos to split the money, keeping a little more than half for himself. 
A) Carlos to keep all of the money for himself. 
B) Carlos to give all of the money to Darla. 
C) Carlos to split the money evenly with Darla. 
D) Carlos to split the money, keeping a little more than half for himself.

Question 20

Behavioral economists criticize neoclassical models as being

Accepted Answer

A) messy and imprecise. 
B) accurate but artificially elegant. 
C) precise but inaccurate. 
D) vague but accurate. 
A) messy and imprecise. 
B) accurate but artificially elegant. 
C) precise but inaccurate. 
D) vague but accurate.

Exam 8: Behavioral Economics

System 1 is the part of the brain that carefully weighs the benefits and costs when making decisions.

According to prospect theory, people tend to favor default options. This is known as the

The ultimatum game reveals that the threat of rejection

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

Suppose Justine and Sarah are playing the dictator game. Justine is the dictator and has $100 to allocate. Based on repeated experiments of the dictator game, what is the least likely outcome for this game?

Most people's natural aversion against complex mathematical problems is an example of

What behaviors are common among the players of the ultimatum game?

Behavioral economics recognizes that people frequently make errors, but these errors generally cancel out in such a way that neoclassical models are sufficient for predicting economic outcomes.

Results of the dictator and ultimatum games reveal that people act in equally self-interested ways, regardless of the context or rules of the game.

Which of the following supermarket strategies to increase sales would be most consistent with a behavioral economics (versus neoclassical economics)approach?

Sellers' sense of fairness in pricing can sometimes lead them to pricing decisions that do not maximize profits.

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

The tendency of people to underestimate the time required to complete a task is called the

Which of the following is the best example of a precommitment used to overcome time inconsistency?

The results of running the dictator game experiments thousands of times have revealed to behavioral economists that

"Impulse buying" is often the result of a

A key difference between neoclassical economics and behavioral economics is that in behavioral economics, context affects preferences.

Carlos and Darla are playing the dictator game. Carlos is assigned the role of dictator and given $20 to split between the two of them. Based on previous experiments with this game, if Carlos is a typical player, behavioral economists would expect

Behavioral economists criticize neoclassical models as being

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