Question 1

According to behavioral economics, cognitive biases

Accepted Answer

A) create errors in decision making, but these errors are random and follow no particular pattern. 
B) occur but are not prevalent enough to distort the behavioral predictions of neoclassical economics. 
C) are misunderstandings or misperceptions that cause systematic error. 
D) are solely the result of faulty heuristics. 
A) create errors in decision making, but these errors are random and follow no particular pattern. 
B) occur but are not prevalent enough to distort the behavioral predictions of neoclassical economics. 
C) are misunderstandings or misperceptions that cause systematic error. 
D) are solely the result of faulty heuristics.

Question 2

A central focus of prospect theory is

Accepted Answer

A) how people deal with "bads," as well as how they deal with "goods." 
B) optimizing precious metal discovery and extraction. 
C) maximizing returns from investment portfolios. 
D) how people make rational decisions despite having incomplete information. 
A) how people deal with "bads," as well as how they deal with "goods." 
B) optimizing precious metal discovery and extraction. 
C) maximizing returns from investment portfolios. 
D) how people make rational decisions despite having incomplete information.

Question 3

Neoclassical economic models make simplifying assumptions about people's rationality and preferences for the following reasons, except

Accepted Answer

A) these assumptions make the models mathematically elegant. 
B) these assumptions allow the models to be conveniently solved mathematically. 
C) these assumptions allow the models to generate quite precise predictions of behavior. 
D) these assumptions allow the models to generate quite accurate predictions of behavior. 
A) these assumptions make the models mathematically elegant. 
B) these assumptions allow the models to be conveniently solved mathematically. 
C) these assumptions allow the models to generate quite precise predictions of behavior. 
D) these assumptions allow the models to generate quite accurate predictions of behavior.

Question 4

One consequence of the confirmation bias is that many people believe that they could "beat the (stock)market."

Accepted Answer

A) True 
 B)False

Question 5

Myopia and time inconsistency are major stumbling blocks that behavioral economists have found in people's ability to make decisions that involve trade-offs between

Accepted Answer

A) importing and exporting. 
B) work and leisure. 
C) the private sector and the government. 
D) the present and the future. 
A) importing and exporting. 
B) work and leisure. 
C) the private sector and the government. 
D) the present and the future.

Question 6

Dan was certain that his upcoming economics test would be so easy that he could wait to study until the night before and still do well on the exam. When he cracked open his book and notes the night before the exam, he realized he should've started studying earlier. According to behavioral economics, Dan's error was caused primarily by

Accepted Answer

A) a planning fallacy. 
B) an overconfidence effect. 
C) framing effects. 
D) hindsight bias. 
A) a planning fallacy. 
B) an overconfidence effect. 
C) framing effects. 
D) hindsight bias.

Question 7

Which of the following best describes the relationship between market transactions and the ultimatum and dictator games?

Accepted Answer

A) Market transactions operate more like the ultimatum game than the dictator game. 
B) Market transactions operate more like the dictator game than the ultimatum game. 
C) The ultimatum and dictator games both provide good representations of how market transactions work. 
D) Neither the ultimatum game nor the dictator game bears much similarity to market transactions. 
A) Market transactions operate more like the ultimatum game than the dictator game. 
B) Market transactions operate more like the dictator game than the ultimatum game. 
C) The ultimatum and dictator games both provide good representations of how market transactions work. 
D) Neither the ultimatum game nor the dictator game bears much similarity to market transactions.

Question 8

Fred just purchased an expensive new refrigerator and is considering purchasing the overpriced warranty. In making his decision on the warranty, Fred ignores better ways that his money could be spent, including paying off high-interest credit card debt. According to prospect theory, the process that leads Fred to ignore the debt and buy the overpriced warranty is

Accepted Answer

A) framing bias. 
B) anchoring. 
C) mental accounting. 
D) confirmation bias. 
A) framing bias. 
B) anchoring. 
C) mental accounting. 
D) confirmation bias.

Question 9

So-called precommitments are effective ways of fighting

Accepted Answer

A) framing effects. 
B) mental accounting. 
C) anchoring. 
D) self-control problems. 
A) framing effects. 
B) mental accounting. 
C) anchoring. 
D) self-control problems.

Question 10

Which of the following is the best example of a System 2 decision and action?

Accepted Answer

A) Marty learns that his usual driving route to work will have significant delays due to construction but forgets and goes that way anyway. 
B) Doug eats a whole plate of nachos despite the fact it compromises his carefully planned diet. 
C) Bruce "goes with his gut" when choosing between two kinds of motorcycles to purchase. 
D) Chuck, who has contemplated a job change for a month and has other offers, chooses to quit when his boss makes him mad. 
A) Marty learns that his usual driving route to work will have significant delays due to construction but forgets and goes that way anyway. 
B) Doug eats a whole plate of nachos despite the fact it compromises his carefully planned diet. 
C) Bruce "goes with his gut" when choosing between two kinds of motorcycles to purchase. 
D) Chuck, who has contemplated a job change for a month and has other offers, chooses to quit when his boss makes him mad.

Question 11

When Lucian starts his new job, he is given the option to contribute to his retirement fund, which the company will match up to 5 percent of his base salary. Lucian knows he can afford to contribute to his retirement fund; he only needs to file a form to activate the contributions and matching. According to prospect theory, if Lucian is typical in his behavior, we would expect him to

Accepted Answer

A) take full advantage of the matching contribution because that would maximize his financial well-being. 
B) not file the form to start the contribution and match. 
C) negotiate with his boss for a higher match in order to increase his returns. 
D) only start contributions if the retirement portfolio is heavily weighted in high-return assets. 
A) take full advantage of the matching contribution because that would maximize his financial well-being. 
B) not file the form to start the contribution and match. 
C) negotiate with his boss for a higher match in order to increase his returns. 
D) only start contributions if the retirement portfolio is heavily weighted in high-return assets.

Question 12

Eric tries to eat more healthfully by eliminating cookies, donuts, and similar snacks from his diet. Every day at work, however, coworkers bring in these treats and Eric succumbs to temptation. Which of the following concepts would behavioral economists use to explain Eric's self-control problem?

Accepted Answer

A) time inconsistency 
B) availability heuristic 
C) self-serving bias 
D) system 2 processes dominating decision making 
A) time inconsistency 
B) availability heuristic 
C) self-serving bias 
D) system 2 processes dominating decision making

Question 13

The facts that many people give to charity and that most people obey the law regardless of whether someone is watching or not, are field evidence for

Accepted Answer

A) the invisible hand. 
B) fairness. 
C) self-interest. 
D) cognitive biases. 
A) the invisible hand. 
B) fairness. 
C) self-interest. 
D) cognitive biases.

Question 14

Suppose Faith and Mickey are playing both dictator and ultimatum games. Faith is the dictator/proposer and has $1,000 to allocate. Based on repeated experiments of the dictator and ultimatum games, what payouts to Faith would be most consistent with the findings of behavioral economists?

Accepted Answer

A) Faith receives $1,000 from the dictator game and $1,000 from the ultimatum game. 
B) Faith receives $500 from the dictator game and $420 from the ultimatum game. 
C) Faith receives $500 from the dictator game and $500 from the ultimatum game. 
D) Faith receives $580 from the dictator game and $540 from the ultimatum game. 
A) Faith receives $1,000 from the dictator game and $1,000 from the ultimatum game. 
B) Faith receives $500 from the dictator game and $420 from the ultimatum game. 
C) Faith receives $500 from the dictator game and $500 from the ultimatum game. 
D) Faith receives $580 from the dictator game and $540 from the ultimatum game.

Question 15

Carlos and Darla are representative individuals 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 by behavioral economists, about a third of the time we 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 16

Which of the following questions best illustrates the "framing effects" studied by behavioral economists?

Accepted Answer

A) Which would you rather have after lunch today, an apple or an orange? 
B) How much would you rather receive: $100 while everyone else gets $110, or $80 like everyone else? 
C) Where would you rather invest your funds, in stocks or gold certificates? 
D) What would you rather do: go to college and postpone having a full-time job, or forgo college and get a full-time job now? 
A) Which would you rather have after lunch today, an apple or an orange? 
B) How much would you rather receive: $100 while everyone else gets $110, or $80 like everyone else? 
C) Where would you rather invest your funds, in stocks or gold certificates? 
D) What would you rather do: go to college and postpone having a full-time job, or forgo college and get a full-time job now?

Question 17

Both neoclassical and behavioral economics believe that people are mostly rational in both their decision making and their actions.

Accepted Answer

A) True 
 B)False

Question 18

The threat of rejection is part of what makes the invisible hand a valid metaphor for how the market system works.

Accepted Answer

A) True 
 B)False

Question 19

Recognition heuristics help advertisers gain customers.

Accepted Answer

A) True 
 B)False

Question 20

According to behavioral economists, people's preferences toward a particular outcome

Accepted Answer

A) depend heavily on the contextual information that defines whether that outcome is a gain or a loss. 
B) are context independent because the same state of being is created regardless of one's previous circumstances. 
C) differ across people but are fixed for any given individual. 
D) depend primarily on genetics rather than environmental or contextual forces. 
A) depend heavily on the contextual information that defines whether that outcome is a gain or a loss. 
B) are context independent because the same state of being is created regardless of one's previous circumstances. 
C) differ across people but are fixed for any given individual. 
D) depend primarily on genetics rather than environmental or contextual forces.

Exam 8: Behavioral Economics

According to behavioral economics, cognitive biases

A central focus of prospect theory is

Neoclassical economic models make simplifying assumptions about people's rationality and preferences for the following reasons, except

One consequence of the confirmation bias is that many people believe that they could "beat the (stock)market."

Myopia and time inconsistency are major stumbling blocks that behavioral economists have found in people's ability to make decisions that involve trade-offs between

Which of the following best describes the relationship between market transactions and the ultimatum and dictator games?

So-called precommitments are effective ways of fighting

Which of the following is the best example of a System 2 decision and action?

Eric tries to eat more healthfully by eliminating cookies, donuts, and similar snacks from his diet. Every day at work, however, coworkers bring in these treats and Eric succumbs to temptation. Which of the following concepts would behavioral economists use to explain Eric's self-control problem?

The facts that many people give to charity and that most people obey the law regardless of whether someone is watching or not, are field evidence for

Suppose Faith and Mickey are playing both dictator and ultimatum games. Faith is the dictator/proposer and has $1,000 to allocate. Based on repeated experiments of the dictator and ultimatum games, what payouts to Faith would be most consistent with the findings of behavioral economists?

Carlos and Darla are representative individuals 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 by behavioral economists, about a third of the time we would expect

Which of the following questions best illustrates the "framing effects" studied by behavioral economists?

Both neoclassical and behavioral economics believe that people are mostly rational in both their decision making and their actions.

The threat of rejection is part of what makes the invisible hand a valid metaphor for how the market system works.

Recognition heuristics help advertisers gain customers.

According to behavioral economists, people's preferences toward a particular outcome

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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