Question 1

The tendency of hard-core Republicans to believe that all of the economic developments under the Obama presidency were detrimental to the nation illustrates the

Accepted Answer

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

Question 2

Suppose Justine and Sarah are playing the dictator game. Justine is the dictator and has $120 to allocate. Based on repeated experiments of the dictator game, what is the least likely outcome for this game?

Accepted Answer

A) $120 for Justine and $0 for Sarah. 
B) $70 for Justine and $50 for Sarah. 
C) $60 for Justine and $60 for Sarah. 
D) $0 for Justine and $120 for Sarah. 
A) $120 for Justine and $0 for Sarah. 
B) $70 for Justine and $50 for Sarah. 
C) $60 for Justine and $60 for Sarah. 
D) $0 for Justine and $120 for Sarah.

Question 3

Last month Laura saw the value of her stock portfolio rise by $20,000. This month she saw the value of her portfolio decline by $20,000. According to behavioral economics,

Accepted Answer

A) the positive utility Laura received from seeing her portfolio value rise was equal to the disutility she felt when its value declined. 
B) Laura should not invest in stocks unless the utility she receives from gains is at least as great as the disutility she feels from losses. 
C) the positive utility Laura received from seeing her portfolio value rise was greater than the disutility she felt when its value declined. 
D) the positive utility Laura received from seeing her portfolio value rise was less than the disutility she felt when its value declined. 
A) the positive utility Laura received from seeing her portfolio value rise was equal to the disutility she felt when its value declined. 
B) Laura should not invest in stocks unless the utility she receives from gains is at least as great as the disutility she feels from losses. 
C) the positive utility Laura received from seeing her portfolio value rise was greater than the disutility she felt when its value declined. 
D) the positive utility Laura received from seeing her portfolio value rise was less than the disutility she felt when its value declined.

Question 4

Self-control problems, say, among people on a diet, is caused by the cognitive bias known as time inconsistency.

Accepted Answer

A) True 
 B)False

Question 5

The overconfidence effect exists when people underestimate their chances of being wrong.

Accepted Answer

A) True 
 B)False

Question 6

Riley has a new tennis racket for which she paid $200. Haley would like to buy the racket from Riley. Assuming Riley's decision is only influenced by the endowment effect, which of the following amounts would most likely represent how much Riley would have to receive to be willing to sell the racket?

Accepted Answer

A) $200 
B) $250 
C) $175 
D) $100 
A) $200 
B) $250 
C) $175 
D) $100

Question 7

The tendency of people to misjudge, at the present time, what they will want to do or have at some future time is called

Accepted Answer

A) time inconsistency. 
B) mental accounting. 
C) anchoring. 
D) framing. 
A) time inconsistency. 
B) mental accounting. 
C) anchoring. 
D) framing.

Question 8

Which of the following do behavioral economists blame for why many households in sunny areas resist solar panels because they focus on the upfront installation costs instead of the larger long-run benefits that accrue from the solar panels?

Accepted Answer

A) framing effects 
B) anchoring 
C) myopia 
D) time inconsistency 
A) framing effects 
B) anchoring 
C) myopia 
D) time inconsistency

Question 9

Prospect theory explains the status-quo bias as a combination of loss aversion and the

Accepted Answer

A) anchoring effect. 
B) mental accounting effect. 
C) endowment effect. 
D) confirmation bias. 
A) anchoring effect. 
B) mental accounting effect. 
C) endowment effect. 
D) confirmation bias.

Question 10

One major consequence of the framing effect is that

Accepted Answer

A) people may spend more to insure themselves against rare events but leave themselves uninsured against more common events. 
B) someone could persist in pursuing a failed policy despite overwhelming evidence of the failure. 
C) major business projects may create bottlenecks in the organization because they are not completed as scheduled. 
D) decision makers may make faulty decisions if they are lulled by the environment in which they are making their decisions. 
A) people may spend more to insure themselves against rare events but leave themselves uninsured against more common events. 
B) someone could persist in pursuing a failed policy despite overwhelming evidence of the failure. 
C) major business projects may create bottlenecks in the organization because they are not completed as scheduled. 
D) decision makers may make faulty decisions if they are lulled by the environment in which they are making their decisions.

Question 11

Rosa received a corgi pillow as a raffle prize; she would have been willing to pay $18 to buy it herself. Based on the endowment effect, we would expect Rosa to be willing to sell the pillow

Accepted Answer

A) for some amount less than $18. 
B) only if she is offered more than $18. 
C) for the $18 she would have been willing to pay for the pillow. 
D) under no circumstances whatsoever. 
A) for some amount less than $18. 
B) only if she is offered more than $18. 
C) for the $18 she would have been willing to pay for the pillow. 
D) under no circumstances whatsoever.

Question 12

Neoclassical economics and behavioral economics disagree on the following assumptions, except

Accepted Answer

A) rationality of people. 
B) determinants of market prices. 
C) stability of people's preferences. 
D) strength of people's willpower. 
A) rationality of people. 
B) determinants of market prices. 
C) stability of people's preferences. 
D) strength of people's willpower.

Question 13

Balin purchases fair trade cocoa out of concern for workers' rights and environmental sustainability. He could purchase cocoa of equal quality at a lower price. Behavioral economists would consider Balin's purchase

Accepted Answer

A) unusual in that it demonstrates concern for others. 
B) purely self-interested but motivated by something other than his financial well-being. 
C) as evidence that Balin is not acting purely in his self-interest. 
D) a bad decision because it ignores important information that could improve Balin's well-being. 
A) unusual in that it demonstrates concern for others. 
B) purely self-interested but motivated by something other than his financial well-being. 
C) as evidence that Balin is not acting purely in his self-interest. 
D) a bad decision because it ignores important information that could improve Balin's well-being.

Question 14

What is the hedonic treadmill? What are the implications of this theory?

Accepted Answer

The term hedonic treadmill (pleasure tre

Question 15

In developing prospect theory, which of the following did behavioral economists not discover about people's reaction to goods and bads?

Accepted Answer

A) People feel equivalent losses and gains in equal measure, supporting the assumption that consumers behave rationally. 
B) People are generally loss averse, feeling losses more intensely than gains. 
C) People judge good and bad outcomes relative to the status quo. 
D) People experience both diminishing marginal utility from gains and diminishing marginal disutility from losses. 
A) People feel equivalent losses and gains in equal measure, supporting the assumption that consumers behave rationally. 
B) People are generally loss averse, feeling losses more intensely than gains. 
C) People judge good and bad outcomes relative to the status quo. 
D) People experience both diminishing marginal utility from gains and diminishing marginal disutility from losses.

Question 16

A company has designed an alarm clock that "runs and hides" after going off, forcing the person to get up and find the alarm clock if he or she wants to shut off the alarm. According to behavioral economists,

Accepted Answer

A) it is unlikely to alter people's tendency to shut off the alarm and ultimately oversleep. 
B) the alarm clock keeps people from hitting the snooze button and taking advantage of the availability heuristic. 
C) the alarm clock serves as a precommitment device, helping the user to stick to the originally planned wake-up time. 
D) overconfidence effects will discourage use of such devices. 
A) it is unlikely to alter people's tendency to shut off the alarm and ultimately oversleep. 
B) the alarm clock keeps people from hitting the snooze button and taking advantage of the availability heuristic. 
C) the alarm clock serves as a precommitment device, helping the user to stick to the originally planned wake-up time. 
D) overconfidence effects will discourage use of such devices.

Question 17

Heuristics generally help people to make decisions faster, but also to make more errors.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) holding posted prices constant but reducing package sizes 
B) providing discounts for buying in bulk 
C) placing the most frequently purchased items at the back of the store 
D) positioning high-profit kids cereals on the lower shelves of the cereal aisle 
A) holding posted prices constant but reducing package sizes 
B) providing discounts for buying in bulk 
C) placing the most frequently purchased items at the back of the store 
D) positioning high-profit kids cereals on the lower shelves of the cereal aisle

Question 19

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 20

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

Accepted Answer

A) True 
 B)False

Exam 8: Behavioral Economics

The tendency of hard-core Republicans to believe that all of the economic developments under the Obama presidency were detrimental to the nation illustrates the

Suppose Justine and Sarah are playing the dictator game. Justine is the dictator and has $120 to allocate. Based on repeated experiments of the dictator game, what is the least likely outcome for this game?

Last month Laura saw the value of her stock portfolio rise by $20,000. This month she saw the value of her portfolio decline by $20,000. According to behavioral economics,

Self-control problems, say, among people on a diet, is caused by the cognitive bias known as time inconsistency.

The overconfidence effect exists when people underestimate their chances of being wrong.

The tendency of people to misjudge, at the present time, what they will want to do or have at some future time is called

Which of the following do behavioral economists blame for why many households in sunny areas resist solar panels because they focus on the upfront installation costs instead of the larger long-run benefits that accrue from the solar panels?

Prospect theory explains the status-quo bias as a combination of loss aversion and the

One major consequence of the framing effect is that

Rosa received a corgi pillow as a raffle prize; she would have been willing to pay $18 to buy it herself. Based on the endowment effect, we would expect Rosa to be willing to sell the pillow

Neoclassical economics and behavioral economics disagree on the following assumptions, except

Balin purchases fair trade cocoa out of concern for workers' rights and environmental sustainability. He could purchase cocoa of equal quality at a lower price. Behavioral economists would consider Balin's purchase

What is the hedonic treadmill? What are the implications of this theory?

In developing prospect theory, which of the following did behavioral economists not discover about people's reaction to goods and bads?

A company has designed an alarm clock that "runs and hides" after going off, forcing the person to get up and find the alarm clock if he or she wants to shut off the alarm. According to behavioral economists,

Heuristics generally help people to make decisions faster, but also to make more errors.

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

Selfishness is

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

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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