Question 1

Behavioral economists criticize neoclassical models as being

Accepted Answer

A)  messy and imprecise. 
B)  accurate but artificially elegant. 
C)  precise but inaccurate. 
D)  vague but accurate. 
A)  messy and imprecise. 
B)  accurate but artificially elegant. 
C)  precise but inaccurate. 
D)  vague but accurate.

Question 2

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 3

According to behavioral economics,

Accepted Answer

A)  gains are felt more intensely than losses. 
B)  each successive unit of loss is equal in its marginal disutility. 
C)  each successive unit of loss hurts, but less than the previous unit. 
D)  each successive unit of loss hurts, and more than the previous unit. 
A)  gains are felt more intensely than losses. 
B)  each successive unit of loss is equal in its marginal disutility. 
C)  each successive unit of loss hurts, but less than the previous unit. 
D)  each successive unit of loss hurts, and more than the previous unit.

Question 4

Automatic payroll deductions help people to fight their time inconsistency problem with regards to saving.

Accepted Answer

A) True 
 B)False

Question 5

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 6

The dictator game

Accepted Answer

A)  reveals nothing important about economic behavior because the money used is hypothetical. 
B)  demonstrates that people care about fairness and will sacrifice financially for others. 
C)  demonstrates nothing definitive about fairness, as concerns about the other player's perceptions will influence the dictator's choices. 
D)  regularly results in the dictator taking all of the money for him/herself, as economic theory would predict. 
A)  reveals nothing important about economic behavior because the money used is hypothetical. 
B)  demonstrates that people care about fairness and will sacrifice financially for others. 
C)  demonstrates nothing definitive about fairness, as concerns about the other player's perceptions will influence the dictator's choices. 
D)  regularly results in the dictator taking all of the money for him/herself, as economic theory would predict.

Question 7

Because of framing effects, a worker will be happy with a 5 percent raise regardless of how much of a raise her fellow employees receive.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

In the financial crisis that precipitated the 2007-2009 recession, people systematically overestimated their prospects for financial gain. Which branch of economics would most likely have expected to predict this?

Accepted Answer

A)  neoclassical economics 
B)  Keynesian economics 
C)  behavioral economics 
D)  classical economics 
A)  neoclassical economics 
B)  Keynesian economics 
C)  behavioral economics 
D)  classical economics

Question 10

According to the concept of framing effects,

Accepted Answer

A)  advertising power is limited because of the inability of firms to change consumers' perspectives. 
B)  all people will assign the same utility to a given situation, regardless of their previous status quo. 
C)  whether a new situation is viewed as a gain or a loss depends on one's starting position. 
D)  firms should never raise prices or reduce wages. 
A)  advertising power is limited because of the inability of firms to change consumers' perspectives. 
B)  all people will assign the same utility to a given situation, regardless of their previous status quo. 
C)  whether a new situation is viewed as a gain or a loss depends on one's starting position. 
D)  firms should never raise prices or reduce wages.

Question 11

(Consider This) Kara was earning $40,000 per year. When her income rose to $60,000 per year, she enjoyed the higher level of consumption for a while, but eventually she was no more happy than when she earned $40,000 (assume prices didn't change over this time period). Economist Richard Easterlin described this as

Accepted Answer

A)  anchoring. 
B)  the endowment effect. 
C)  irrational economic behavior. 
D)  the hedonic treadmill. 
A)  anchoring. 
B)  the endowment effect. 
C)  irrational economic behavior. 
D)  the hedonic treadmill.

Question 12

The process by which people isolate purchases and fail to consider all consumption options simultaneously is known as

Accepted Answer

A)  framing. 
B)  mental accounting. 
C)  anchoring. 
D)  the endowment effect. 
A)  framing. 
B)  mental accounting. 
C)  anchoring. 
D)  the endowment effect.

Question 13

Bucky and Satchel are offered identical jobs, each paying $80,000 per year. According to behavioral economics,

Accepted Answer

A)  they should feel equally good about the job offer. 
B)  how each will feel about the job offer will depend on their current positions and incomes. 
C)  if Bucky's current income is $60,000 per year, and Satchel's is $70,000 per year, we would expect Bucky to receive twice as much additional utility from taking the job as Satchel would. 
D)  if the jobs will not change their income, they are more likely to switch jobs than remain with the status quo. 
A)  they should feel equally good about the job offer. 
B)  how each will feel about the job offer will depend on their current positions and incomes. 
C)  if Bucky's current income is $60,000 per year, and Satchel's is $70,000 per year, we would expect Bucky to receive twice as much additional utility from taking the job as Satchel would. 
D)  if the jobs will not change their income, they are more likely to switch jobs than remain with the status quo.

Question 14

People's tendency to prefer the "default" option over other options is known in prospect theory as

Accepted Answer

A)  the anchoring effect. 
B)  the mental accounting effect. 
C)  status quo bias. 
D)  confirmation bias. 
A)  the anchoring effect. 
B)  the mental accounting effect. 
C)  status quo bias. 
D)  confirmation bias.

Question 15

Recognition heuristics help advertisers gain customers.

Accepted Answer

A) True 
 B)False

Question 16

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 17

Why, according to behavioral economics, would supermarkets place gum, candy, and other small convenience items near the cash registers?

Accepted Answer

A)  Those are the shelving locations that minimize costs. 
B)  Stores try to make frequently purchased items quicker and easier for consumers to access. 
C)  Smaller items tend to fall through shopping cart holes, so stores reduce that problem for consumers by having smaller items at the checkout stands. 
D)  Many of these are small items that people will buy on an impulse. 
A)  Those are the shelving locations that minimize costs. 
B)  Stores try to make frequently purchased items quicker and easier for consumers to access. 
C)  Smaller items tend to fall through shopping cart holes, so stores reduce that problem for consumers by having smaller items at the checkout stands. 
D)  Many of these are small items that people will buy on an impulse.

Question 18

The fact that specific areas of the human brain deal with specific sensations and activities like hearing, speech, and breathing is referred to as brain

Accepted Answer

A)  heuristics. 
B)  specificity. 
C)  modularity. 
D)  myopia. 
A)  heuristics. 
B)  specificity. 
C)  modularity. 
D)  myopia.

Question 19

Neoclassical economists generally believe which of the following about human behavior?

Accepted Answer

A)  While individuals attempt to make rational decisions, poor computational skills often lead to systematic errors. 
B)  People care a lot about fairness and are often willing to sacrifice some of their own well-being to treat others fairly. 
C)  When individuals make mistakes in decision making, they adjust to these errors and rarely repeat them. 
D)  When individuals are selfless and act for the good of others, the invisible hand guides the collective behaviors to promote the good of society. 
A)  While individuals attempt to make rational decisions, poor computational skills often lead to systematic errors. 
B)  People care a lot about fairness and are often willing to sacrifice some of their own well-being to treat others fairly. 
C)  When individuals make mistakes in decision making, they adjust to these errors and rarely repeat them. 
D)  When individuals are selfless and act for the good of others, the invisible hand guides the collective behaviors to promote the good of society.

Question 20

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.

Exam 8: Behavioral Economics

Behavioral economists criticize neoclassical models as being

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

According to behavioral economics,

Automatic payroll deductions help people to fight their time inconsistency problem with regards to saving.

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,

The dictator game

Because of framing effects, a worker will be happy with a 5 percent raise regardless of how much of a raise her fellow employees receive.

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

In the financial crisis that precipitated the 2007-2009 recession, people systematically overestimated their prospects for financial gain. Which branch of economics would most likely have expected to predict this?

According to the concept of framing effects,

The process by which people isolate purchases and fail to consider all consumption options simultaneously is known as

Bucky and Satchel are offered identical jobs, each paying $80,000 per year. According to behavioral economics,

People's tendency to prefer the "default" option over other options is known in prospect theory as

Recognition heuristics help advertisers gain customers.

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

Why, according to behavioral economics, would supermarkets place gum, candy, and other small convenience items near the cash registers?

The fact that specific areas of the human brain deal with specific sensations and activities like hearing, speech, and breathing is referred to as brain

Neoclassical economists generally believe which of the following about human behavior?

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

Filters