Exam 29: Behavioral Economics

In a study by financial economists Brad Barber and Terrance Odeank of stock portfolio management techniques and returns, men trade more frequently on average than women, and as a result of more active management, men's portfolios grow at a higher rate of return than women's.

In an experiment on risk aversion and inconsistency, a group of people were given the option to accept or reject the following gamble: 50% chance to win $150, 50% chance to lose $100. Which of the following scenarios is most accurate and would most likely occur?

John is doing very well in Intermediate Micro economics, but hires a graduate student to spend 1 hour a week with him to do workbook problems together. John always gets every problem correct without help from the graduate student, but he insists on continuing the relationship. Is there a behavioral economic explanation of why this is rational? Explain.

If a coin is tossed, and the results are 6 consecutive tails (TTTTTT), this is conclusive evidence that the coin is not a fair coin.

Under hyperbolic discounting, a person discounts the long term future more heavily than the near term future.

A substantial majority of Americans have inadequate retirement savings. Behavioral economists attribute this to

In an experiment on risk aversion, a group of people were given the following choice: A) Lose $100 with certainty, or B) 50% chance to win $50, 50% chance to lose $200. An overwhelming majority chose option B. This can be best explained by which of the following?

Using lessons learned from behavioral economists, which of the following would be most likely to increase retirement savings?

Deb plans and prepares her meals 1 month in advance. Scott eats out for lunch every day. According to observations from behavioral economics, Scott will eat more varied meals than Deb.

People find it easier to commit to saving for retirement from next year's salary as opposed to current salary. This behavior is consistent with hyperbolic discounting of income.

Which of the following is NOT an example of the anchoring effect (i.e., choices are affected by spurious information)?

According to a recent New York Times article, "Bank of America debit card customers can agree in advance to round up their purchases to the next dollar, putting the extra cents into a savings account." Why might customers want to commit to this mechanism rather than make deposits to their savings accounts on their own?

Professor Bob has an incredibly messy office, and really wants to change but just can't. Professor Bob just read his first book about behavioral economics. To help him keep his office more neat, Professor Bob could hire

In the 1960s dark comedy classic Dr. Strangelove, the Soviet Union constructs a Doomsday Machine that will destroy all life on earth automatically if the Soviet Union is attacked. The Doomsday Machine can never be turned off or disabled. Which of the following would best explain why the Soviets would build the Doomsday Machine?

People who have recently become unemployed often believe the national unemployment rate is higher than it actually is. Behavioral economists would attribute this to

Which of the following are examples of the framing effect?

A new DVD of lectures on the topic of macro economics and personal hygiene is being marketed on the Internet as a remedy for insomnia. As an experiment, the marketing firm wants to direct half of Web hits to a page that advertises the DVD as 90% successful in inducing sleep while the other half are directed to a page that advertises the DVD as failing to induce sleep 10% of the time. Would you expect equal numbers of sales from the 2 advertising approaches? Explain.

In the movie The Hunt for Red October, Captain Ramius (Sean Connery) leaves a letter for the Soviet Navy announcing that he intends to defect to the United States. As a result, the Soviet Navy launches a massive effort to find and sink Ramius's ship, the Red October. In announcing that he was intending to defect, Capt. Ramius's actions could be explained as

Consider 2 identical twins, Scott and Rich. Scott is a professional wrestler who will earn lots of income when he is young and will retire by age 40. Rich is a manager who expects to earn high income in his 50s and 60s. The life cycle theory of savings would predict that Scott should save while he is young to smooth consumption over his lifetime, and Rich should borrow against his future earnings when he is young. If Scott and Rich are typical savers, which of the following scenarios is most likely to be observed?

A house was for sale for 9 months with no offers at $350,000. It was taken off the market, and relisted 1 month later at $399,500 and sold in 2 weeks. Which of the following behavioral economic concepts could explain this scenario?