Exam 29: Behavioral Economics

According to behavioral economists, rational consumers are able to make decisions when faced with many choices because preferences are complete.

A couple planning to get married wants to do all that they can to make their marriage last. To help, they should consider having

If a tennis player were truly randomizing over which half of the court to serve to, she would never serve to the same side of the court 5 times in a row.

Psychologists and behavioral economists argue that preferences are "discovered," as opposed to a preexisting guide to choice.

In an experiment on risk aversion and inconsistency, 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. Which of the following scenarios is most accurate and would most likely occur?

An article in the October 15, 2005, edition of the Wall Street Journal described the popularity with New York lawyers and stock brokers of a new gym that hires ex-Marines as fitness trainers. The gym is run with a boot camp motif. Which of the following behavioral economic concepts would help explain the existence of this gym?

In practice, people tend to accept too many large risks (such as forgoing life insurance) and avoid too many small risks (such as losing or breaking a cell phone).

The following statement is a defense of conventional models of consumer behavior against the objections of behavioral economists: Even if many participants in a market do not behave rationally, those who consistently maximize utility will have the greatest effect on market prices and outcomes.

Nash equilibria can be used to make predictions about human behavior in noncooperative games. Behavioral game theory studies actual human interaction, and has found inconsistencies between observed human behavior and Nash-predicted behavior. Which of the following is NOT an inconsistency pointed out by behavioral economists?

In a study of individually held stock portfolios over time, gains were much more likely to be realized than losses. Fifteen percent of all gains were realized in the time period, while only 10% of losses were. Subsequently, the rising stocks that were sold outperformed the losing stocks that were held. Behavioral economists would explain this as

A stingy health maintenance organization (HMO) gives its customers diagnosed with cancer a choice between surgery and radiation therapy, but not both. The brochure they send to their customers describes surgery as 80% successful, but says that 2 out of 10 patients who choose radiation will die. If customers were given a choice between surgery and radiation therapy, which of the following scenarios would most likely occur?

With several additional mutations, the bird flu, whose victims to date are mostly poultry, could become a global epidemic. Suppose there are 2 possible courses of action public health officials could take. For treatment A, the lives of 1 million people out of the 10 million affected would be saved. For treatment B, 90% of those infected would not be helped and would die. If infected persons were given a choice between treatments A and B, which of the following scenarios would most likely occur?

Suppose you and a complete stranger must split $100 in even dollar increments. You propose a split, and the stranger with whom you are splitting the $100 either accepts or rejects. If she rejects, you both receive nothing. a. What is the Nash equilibrium for this game? b. The Nash equilibrium solution is not frequently observed in practice. Explain why.

If Fred were to consume $1,050 1 year from now, he would consider this as good as spending $1,000 today. He would consider $1,628.89 of consumption 10 years into the future equivalent to $1,000 of consumption today. If the interest rate is 5%, Fred preferences