Question 1

Scientists studying human behavior have found that people tend to

Accepted Answer

A) always make rational decisions. 
B) make systematic errors in their decisions. 
C) make only random errors in their decisions. 
D) always make decisions that are not rational. 
A) always make rational decisions. 
B) make systematic errors in their decisions. 
C) make only random errors in their decisions. 
D) always make decisions that are not rational.

Question 2

According to behavioral economists, someone suffering from myopia is most likely to

Accepted Answer

A) spend too little on present consumption and save more than is necessary for the future. 
B) vote only for economic policies that serve his or her short- and long-term interests. 
C) rely too much on System 2 of the brain. 
D) spend too much on present consumption and not save enough for the future. 
A) spend too little on present consumption and save more than is necessary for the future. 
B) vote only for economic policies that serve his or her short- and long-term interests. 
C) rely too much on System 2 of the brain. 
D) spend too much on present consumption and not save enough for the future.

Question 3

People's tendency to attribute their successes to personal effort or a special personal trait, while blaming their failures on the faults of others or on something beyond their control is called

Accepted Answer

A) confirmation bias. 
B) framing effect. 
C) hindsight bias. 
D) self-serving bias. 
A) confirmation bias. 
B) framing effect. 
C) hindsight bias. 
D) self-serving bias.

Question 4

Brain scientists have found that the human brain devotes more neurons toward processing and interpreting visual information than it does to anything else. Therefore,

Accepted Answer

A) we can always believe what our eyes tell us. 
B) we should only believe what our eyes tell us. 
C) since our eyes can fool us, we probably make mental mistakes in other areas too. 
D) behavioral and neoclassical economists agree that our visual impressions are always right. 
A) we can always believe what our eyes tell us. 
B) we should only believe what our eyes tell us. 
C) since our eyes can fool us, we probably make mental mistakes in other areas too. 
D) behavioral and neoclassical economists agree that our visual impressions are always right.

Question 5

What are the two reasons neoclassical economists give for making simplifying assumptions?

Accepted Answer

Neoclassical economists make simplifying

Question 6

Behavioral economics recognizes that people use System 1 to make decisions more often than they use System 2. Which of the following is an implication of that decision-making process?

Accepted Answer

A) A majority of decisions are not made according to the neoclassical assumption of rational behavior. 
B) Most decisions are made following a careful calculation of costs and benefits. 
C) Even though most decisions are irrational, the neoclassical model still accurately predicts outcomes. 
D) System 1 is best at making optimal decisions. 
A) A majority of decisions are not made according to the neoclassical assumption of rational behavior. 
B) Most decisions are made following a careful calculation of costs and benefits. 
C) Even though most decisions are irrational, the neoclassical model still accurately predicts outcomes. 
D) System 1 is best at making optimal decisions.

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

The "hedonic treadmill" of prospect theory suggests that if people's incomes rise and stay at the new higher level, then their feelings of satisfaction also rise and stay at the new higher level.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Neoclassical economics tends to make inaccurate predictions of human behavior in situations involving

Accepted Answer

A) price changes. 
B) financial incentives. 
C) firms' profits. 
D) uncertainty and fairness. 
A) price changes. 
B) financial incentives. 
C) firms' profits. 
D) uncertainty and fairness.

Question 11

Anchoring

Accepted Answer

A) can influence decision making with irrelevant information. 
B) explains why, for example, hamburger will be advertised as 80% lean rather than 20% fat. 
C) causes losses to be felt more intensely than gains. 
D) explains why, for example, firms prefer to reduce package sizes rather than raising prices. 
A) can influence decision making with irrelevant information. 
B) explains why, for example, hamburger will be advertised as 80% lean rather than 20% fat. 
C) causes losses to be felt more intensely than gains. 
D) explains why, for example, firms prefer to reduce package sizes rather than raising prices.

Question 12

Neoclassical theory suggests that to the extent impulse buying occurs, it is infrequent and does not affect the ability of economic models to predict behavior.

Accepted Answer

A) True 
 B)False

Question 13

What are heuristics? How is this related to our decision-making processes?

Accepted Answer

Heuristics are the brain's mental shortc

Question 14

Some people's tendency to believe that they are better than average at making judgments or opinions is called the

Accepted Answer

A) confirmation bias. 
B) framing effect. 
C) overconfidence effect. 
D) self-serving bias. 
A) confirmation bias. 
B) framing effect. 
C) overconfidence effect. 
D) self-serving bias.

Question 15

Suppose that Dairy Barn Foods produces a regular sour cream with 10 grams of fat per serving and a "low fat" sour cream with only 5 grams of fat per serving (assume that this is still considered a lot of fat to consume per serving). According to prospect theory, how should Dairy Barn promote its "low fat" sour cream?

Accepted Answer

A) It should make no mention of fat content, either in absolute terms or relative to its regular sour cream. 
B) It should advertise that the "low fat" sour cream has only "half the fat" of the regular sour cream. 
C) It should advertise that the "low fat" sour cream has only 5 grams of fat per serving. 
D) It won't matter what strategy Dairy Barn uses, as consumers are sufficiently informed as to not be affected by the advertising. 
A) It should make no mention of fat content, either in absolute terms or relative to its regular sour cream. 
B) It should advertise that the "low fat" sour cream has only "half the fat" of the regular sour cream. 
C) It should advertise that the "low fat" sour cream has only 5 grams of fat per serving. 
D) It won't matter what strategy Dairy Barn uses, as consumers are sufficiently informed as to not be affected by the advertising.

Question 16

When people believe murder is a more common cause of death than stomach cancer is, it illustrates 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 17

When the ultimatum game is played for larger rather than smaller amounts of money, behavioral economists have found that when the proposed splits are very uneven

Accepted Answer

A) responders are much more likely to accept the offer because of the amount of money involved. 
B) responders are no more likely to accept the offer if they consider the split to be unfair. 
C) responders are much less likely to accept the offer, because their sense of unfairness is heightened with larger amounts of money. 
D) responders will accept offers at a higher rate but will exact greater emotional penalties on the proposer. 
A) responders are much more likely to accept the offer because of the amount of money involved. 
B) responders are no more likely to accept the offer if they consider the split to be unfair. 
C) responders are much less likely to accept the offer, because their sense of unfairness is heightened with larger amounts of money. 
D) responders will accept offers at a higher rate but will exact greater emotional penalties on the proposer.

Question 18

What three facts about people form the basis for prospect theory?

Accepted Answer

People judge good things and bad things

Question 19

When people retroactively believe that they had accurately foreseen past events, they are illustrating the

Accepted Answer

A) confirmation bias. 
B) framing effect. 
C) hindsight bias. 
D) self-serving bias. 
A) confirmation bias. 
B) framing effect. 
C) hindsight bias. 
D) self-serving bias.

Question 20

According to behavioral economists, giving to charity

Accepted Answer

A) contradicts the view that people are narrowly self-interested. 
B) appears unselfish but in fact is driven by self-interest. 
C) results from an ability to accurately calculate benefits and costs. 
D) is done solely to receive the utility from public recognition. 
A) contradicts the view that people are narrowly self-interested. 
B) appears unselfish but in fact is driven by self-interest. 
C) results from an ability to accurately calculate benefits and costs. 
D) is done solely to receive the utility from public recognition.

Exam 8: Behavioral Economics

Scientists studying human behavior have found that people tend to

According to behavioral economists, someone suffering from myopia is most likely to

People's tendency to attribute their successes to personal effort or a special personal trait, while blaming their failures on the faults of others or on something beyond their control is called

Brain scientists have found that the human brain devotes more neurons toward processing and interpreting visual information than it does to anything else. Therefore,

What are the two reasons neoclassical economists give for making simplifying assumptions?

Behavioral economics recognizes that people use System 1 to make decisions more often than they use System 2. Which of the following is an implication of that decision-making process?

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

The "hedonic treadmill" of prospect theory suggests that if people's incomes rise and stay at the new higher level, then their feelings of satisfaction also rise and stay at the new higher level.

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

Neoclassical economics tends to make inaccurate predictions of human behavior in situations involving

Anchoring

Neoclassical theory suggests that to the extent impulse buying occurs, it is infrequent and does not affect the ability of economic models to predict behavior.

What are heuristics? How is this related to our decision-making processes?

Some people's tendency to believe that they are better than average at making judgments or opinions is called the

When people believe murder is a more common cause of death than stomach cancer is, it illustrates the

When the ultimatum game is played for larger rather than smaller amounts of money, behavioral economists have found that when the proposed splits are very uneven

What three facts about people form the basis for prospect theory?

When people retroactively believe that they had accurately foreseen past events, they are illustrating the

According to behavioral economists, giving to charity

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

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