Question 1

According to behavioral economics, one major cause of self-control problems (such as strictly following through on "new year's resolutions") is

Accepted Answer

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

Question 2

Isolating transactions from the overall set of consumption options is known as anchoring.

Accepted Answer

A) True 
 B)False  False

Question 3

That people tend to hold on to shares of stock well past the point where it makes sense to sell those shares can be explained in part by the

Accepted Answer

A)  anchoring effect. 
B)  endowment effect. 
C)  status quo bias. 
D)  confirmation bias. 
A)  anchoring effect. 
B)  endowment effect. 
C)  status quo bias. 
D)  confirmation bias. B

Question 4

The dictator and ultimatum games reveal that fairness and concern for others motivate people's behavior.

Accepted Answer

A) True 
 B)False

Question 5

Placement of goods in grocery and other retail stores is often done with the objective of encouraging impulse buying.

Accepted Answer

A) True 
 B)False

Question 6

The "shadow heuristic" is all of the following, except

Accepted Answer

A)  when the brain assumes that light always falls from above. 
B)  what makes us interpret two-dimensional shaded circles as three-dimensional bumps or holes. 
C)  what allows us to measure the height of a tall structure by analyzing its shadow. 
D)  when we sometimes mistakenly interpret the contours of a picture of a ball or a box. 
A)  when the brain assumes that light always falls from above. 
B)  what makes us interpret two-dimensional shaded circles as three-dimensional bumps or holes. 
C)  what allows us to measure the height of a tall structure by analyzing its shadow. 
D)  when we sometimes mistakenly interpret the contours of a picture of a ball or a box.

Question 7

Results of the dictator and ultimatum games reveal that people act in equally self-interested ways, regardless of the context or rules of the game.

Accepted Answer

A) True 
 B)False

Question 8

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 9

Some economists are suggesting that we should use the insights of behavioral economics to

Accepted Answer

A)  coerce people to make decisions toward improving their happiness. 
B)  design elaborate rules to restrict individuals' chances of hurting themselves. 
C)  nudge people toward choices that improve their welfare or that of others. 
D)  provide huge monetary incentives to people to move them to action. 
A)  coerce people to make decisions toward improving their happiness. 
B)  design elaborate rules to restrict individuals' chances of hurting themselves. 
C)  nudge people toward choices that improve their welfare or that of others. 
D)  provide huge monetary incentives to people to move them to action.

Question 10

The threat of rejection in market transactions

Accepted Answer

A)  leads to better products for consumers. 
B)  leads to lower prices for consumers. 
C)  leads to greater cooperation between buyers and sellers. 
D)  does all of these. 
A)  leads to better products for consumers. 
B)  leads to lower prices for consumers. 
C)  leads to greater cooperation between buyers and sellers. 
D)  does all of these.

Question 11

Fatal automobile accidents occur much more frequently than do fatal airplane crashes, yet airplane crashes receive a disproportionate amount of media coverage. As a result, some people are overly fearful of flying in planes yet have no problem riding in cars. Which of the following cognitive biases best explains this disconnect between these people's fears and the statistical realities?

Accepted Answer

A)  overconfidence effect 
B)  availability heuristic 
C)  self-serving bias 
D)  confirmation bias 
A)  overconfidence effect 
B)  availability heuristic 
C)  self-serving bias 
D)  confirmation bias

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Heuristics help people make faster, error-free decisions.

Accepted Answer

A) True 
 B)False

Question 14

Specialty shops can charge and get customers to pay higher prices for identical goods than they would pay in "big box" stores. Assuming that these differences are driven by store appearance rather than differences in services provided, which of the following best explains this phenomenon?

Accepted Answer

A)  availability heuristics 
B)  framing effects 
C)  confirmation biases 
D)  self-serving biases 
A)  availability heuristics 
B)  framing effects 
C)  confirmation biases 
D)  self-serving biases

Question 15

Because heuristics appear to be hardwired into the brain, the consequences include the following, except that

Accepted Answer

A)  it is sometimes difficult for people to correct detrimental behaviors or routines. 
B)  people may be vulnerable to others who understand their hardwired tendencies. 
C)  heuristics make people consistently behave in a rational manner. 
D)  people may make behavioral changes if they're exposed to a situation where a heuristic kicks in and starts driving their decision. 
A)  it is sometimes difficult for people to correct detrimental behaviors or routines. 
B)  people may be vulnerable to others who understand their hardwired tendencies. 
C)  heuristics make people consistently behave in a rational manner. 
D)  people may make behavioral changes if they're exposed to a situation where a heuristic kicks in and starts driving their decision.

Question 16

Why do cereals marketers most prefer to have their brand occupy the shelf-space a foot or two below a typical adult's eye-level?

Accepted Answer

A)  Because they know that adults typically look down when they go by the store shelves. 
B)  Because that shelf-space is the lowest priced space they could occupy. 
C)  Because it's a lot easier to restock those shelf-spaces. 
D)  Because they are targeting the children who go shopping with adults. 
A)  Because they know that adults typically look down when they go by the store shelves. 
B)  Because that shelf-space is the lowest priced space they could occupy. 
C)  Because it's a lot easier to restock those shelf-spaces. 
D)  Because they are targeting the children who go shopping with adults.

Question 17

According to the "endowment effect,"

Accepted Answer

A)  people are willing to pay more for things they don't own than they would have to receive to give up something they already have. 
B)  people feel gains and losses with equal intensity. 
C)  people assign higher values to things they own than things they don't. 
D)  the intensity of feelings from gains and losses depends on how much wealth one possesses. 
A)  people are willing to pay more for things they don't own than they would have to receive to give up something they already have. 
B)  people feel gains and losses with equal intensity. 
C)  people assign higher values to things they own than things they don't. 
D)  the intensity of feelings from gains and losses depends on how much wealth one possesses.

Question 18

Which of the following is the best example of a precommitment used to overcome time inconsistency?

Accepted Answer

A)  finding a running partner and setting a regular schedule of when you will run together 
B)  deciding to save a percentage of each month's paycheck 
C)  signing up for a free trial membership at the local gym 
D)  buying an alarm clock 
A)  finding a running partner and setting a regular schedule of when you will run together 
B)  deciding to save a percentage of each month's paycheck 
C)  signing up for a free trial membership at the local gym 
D)  buying an alarm clock

Question 19

One major consequence of the overconfidence effect is that

Accepted Answer

A)  some people cannot correct a personal trait that might be causing them to fail in many ventures. 
B)  someone could persist in pursuing a failed policy despite overwhelming evidence of the failure. 
C)  bad decisions can be made because people will act based on irrelevant information. 
D)  some people may wrongly believe in their forecasting ability to predict future outcomes of risky investments. 
A)  some people cannot correct a personal trait that might be causing them to fail in many ventures. 
B)  someone could persist in pursuing a failed policy despite overwhelming evidence of the failure. 
C)  bad decisions can be made because people will act based on irrelevant information. 
D)  some people may wrongly believe in their forecasting ability to predict future outcomes of risky investments.

Question 20

When economists talk about a "new normal" in terms of conditions in the production and employment sectors, they are suggesting a change in people's perceptions influenced by the

Accepted Answer

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

Exam 8: Behavioral Economics

According to behavioral economics, one major cause of self-control problems (such as strictly following through on "new year's resolutions") is

Isolating transactions from the overall set of consumption options is known as anchoring.

That people tend to hold on to shares of stock well past the point where it makes sense to sell those shares can be explained in part by the

The dictator and ultimatum games reveal that fairness and concern for others motivate people's behavior.

Placement of goods in grocery and other retail stores is often done with the objective of encouraging impulse buying.

The "shadow heuristic" is all of the following, except

Results of the dictator and ultimatum games reveal that people act in equally self-interested ways, regardless of the context or rules of the game.

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

Some economists are suggesting that we should use the insights of behavioral economics to

The threat of rejection in market transactions

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

Heuristics help people make faster, error-free decisions.

Specialty shops can charge and get customers to pay higher prices for identical goods than they would pay in "big box" stores. Assuming that these differences are driven by store appearance rather than differences in services provided, which of the following best explains this phenomenon?

Because heuristics appear to be hardwired into the brain, the consequences include the following, except that

Why do cereals marketers most prefer to have their brand occupy the shelf-space a foot or two below a typical adult's eye-level?

According to the "endowment effect,"

Which of the following is the best example of a precommitment used to overcome time inconsistency?

One major consequence of the overconfidence effect is that

When economists talk about a "new normal" in terms of conditions in the production and employment sectors, they are suggesting a change in people's perceptions influenced by the

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role 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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