Question 1

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 2

When gasoline at $3.60/gallon looks relatively cheap after a period of $5/gallon gas, that's an illustration of the

Accepted Answer

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

Question 3

Behavioral economics developed as a field of study that looks into how people make rational decisions based on self-interest.

Accepted Answer

A) True 
 B)False

Question 4

Prospect theory would suggest that

Accepted Answer

A)  buyers would feel the "loss" due to an increase in the price of something they buy more than the "gain" they'd feel if the price fell by an equal amount. 
B)  buyers would feel the "loss" due to an increase in the price of something they buy less than the "gain" they'd feel if the price fell by an equal amount. 
C)  buyers are more conscious about changes in the size of a chocolate bar than about changes in its price. 
D)  buyers are not fooled by sellers who keep their prices constant but shrink the size of their products. 
A)  buyers would feel the "loss" due to an increase in the price of something they buy more than the "gain" they'd feel if the price fell by an equal amount. 
B)  buyers would feel the "loss" due to an increase in the price of something they buy less than the "gain" they'd feel if the price fell by an equal amount. 
C)  buyers are more conscious about changes in the size of a chocolate bar than about changes in its price. 
D)  buyers are not fooled by sellers who keep their prices constant but shrink the size of their products.

Question 5

The status quo effect suggests that giving people more options is always good for them.

Accepted Answer

A) True 
 B)False

Question 6

One major point of disagreement between neoclassical economics and behavioral economics is the assumption of rationality.

Accepted Answer

A) True 
 B)False

Question 7

Prospect theory is based on behavioral economists' understanding of how people

Accepted Answer

A)  react to good things (or gains) and bad (or losses). 
B)  make predictions about their future income. 
C)  search for job prospects or business prospects. 
D)  behave under stressful conditions. 
A)  react to good things (or gains) and bad (or losses). 
B)  make predictions about their future income. 
C)  search for job prospects or business prospects. 
D)  behave under stressful conditions.

Question 8

Prospect theory and the work of behavioral economists confirm that consumers are economically rational.

Accepted Answer

A) True 
 B)False

Question 9

Al regularly pays the full amount of taxes due, even though he could easily hide some of his income and reduce his tax burden, with no risk of getting caught. According to behavioral economics,

Accepted Answer

A)  Al is not economically rational in his behavior. 
B)  fairness and other moral considerations cause Al to act contrary to his pure self-interest. 
C)  Al is more ethical than the majority of the population. 
D)  heuristics are causing Al to act honorably, not a conscious or deliberative thought process. 
A)  Al is not economically rational in his behavior. 
B)  fairness and other moral considerations cause Al to act contrary to his pure self-interest. 
C)  Al is more ethical than the majority of the population. 
D)  heuristics are causing Al to act honorably, not a conscious or deliberative thought process.

Question 10

Cognitive biases are the result of

Accepted Answer

A)  heuristics used in the deliberative processes of the human brain. 
B)  heuristics used in the intuitive processes of the human brain. 
C)  deliberative processes of the human brain taking over the intuitive ones. 
D)  the conflict between the older part and the newer part of the human brain. 
A)  heuristics used in the deliberative processes of the human brain. 
B)  heuristics used in the intuitive processes of the human brain. 
C)  deliberative processes of the human brain taking over the intuitive ones. 
D)  the conflict between the older part and the newer part of the human brain.

Question 11

Heuristics generally help people to make decisions faster, but also to make more errors.

Accepted Answer

A) True 
 B)False

Question 12

(Last Word) The United Kingdom's Behavioral Insights Team substantially increased the amount of income tax collected each year by

Accepted Answer

A)  printing frowning face emoticons on correspondence to delinquent payers. 
B)  mailing letters to those who had not yet paid, telling them that their neighbors had paid. 
C)  establishing an automatic payroll withdrawal system to collect taxes. 
D)  sending delinquent payers pictures of poor children. 
A)  printing frowning face emoticons on correspondence to delinquent payers. 
B)  mailing letters to those who had not yet paid, telling them that their neighbors had paid. 
C)  establishing an automatic payroll withdrawal system to collect taxes. 
D)  sending delinquent payers pictures of poor children.

Question 13

The persistence of some "urban legends" and some myths is a reflection of the

Accepted Answer

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

Question 14

Suppose Gina and Henry play two rounds of the ultimatum game. In the first round they play for $10; in the second round they play for $1,000. In the first round Gina suggests an 80/20 split ($8 to Gina, $2 to Henry), but Henry quickly rejects the offer as unfair. If in the second round Gina offers the same split ($800 to Gina, $200 to Henry), research by behavioral economists suggests that Henry will

Accepted Answer

A)  accept the offer because the dollar amount he would forgo by rejecting is substantial. 
B)  counteroffer with a more even split. 
C)  weigh the offer much more carefully because of the dollar amounts involved but ultimately reject the offer. 
D)  exhibit a stronger negative reaction than the first time and ultimately reject the offer. 
A)  accept the offer because the dollar amount he would forgo by rejecting is substantial. 
B)  counteroffer with a more even split. 
C)  weigh the offer much more carefully because of the dollar amounts involved but ultimately reject the offer. 
D)  exhibit a stronger negative reaction than the first time and ultimately reject the offer.

Question 15

(Consider This) In sunny parts of the country, solar panels generate net financial benefits in just a few years, despite having high installation costs. Despite their long-run profitability, the high upfront costs discourage many from installing solar panels. From a behavioral economics perspective, this is the result of

Accepted Answer

A)  myopia. 
B)  time inconsistency. 
C)  status quo bias. 
D)  the endowment effect. 
A)  myopia. 
B)  time inconsistency. 
C)  status quo bias. 
D)  the endowment effect.

Question 16

Wall Street bosses who believed that the huge profits of their firms prior to the financial crisis that started in 2007 was their personal accomplishment and that the financial crisis was due to overregulation by government illustrates the

Accepted Answer

A)  confirmation bias. 
B)  framing effect. 
C)  hindsight bias. 
D)  self-serving bias. 
A)  confirmation bias. 
B)  framing effect. 
C)  hindsight bias. 
D)  self-serving bias.

Question 17

Suppose that Dairy Barn Foods produces a regular sour cream with 10 grams of fat per serving and a "low fat" sour cream with only 5 grams of fat per serving (assume that this is still considered a lot of fat to consume per serving). According to prospect theory, how should Dairy Barn promote its "low fat" sour cream?

Accepted Answer

A)  It should make no mention of fat content, either in absolute terms or relative to its regular sour cream. 
B)  It should advertise that the "low fat" sour cream has only "half the fat" of the regular sour cream. 
C)  It should advertise that the "low fat" sour cream has only 5 grams of fat per serving. 
D)  It won't matter what strategy Dairy Barn uses, as consumers are sufficiently informed as to not be affected by the advertising. 
A)  It should make no mention of fat content, either in absolute terms or relative to its regular sour cream. 
B)  It should advertise that the "low fat" sour cream has only "half the fat" of the regular sour cream. 
C)  It should advertise that the "low fat" sour cream has only 5 grams of fat per serving. 
D)  It won't matter what strategy Dairy Barn uses, as consumers are sufficiently informed as to not be affected by the advertising.

Question 18

One of the important contributions of behavioral economics is the focus on how people make decisions involving

Accepted Answer

A)  goods and services. 
B)  inputs and outputs. 
C)  good things and bad things. 
D)  prices and money. 
A)  goods and services. 
B)  inputs and outputs. 
C)  good things and bad things. 
D)  prices and money.

Question 19

Self-control problems, say, among people on a diet, is caused by the cognitive bias known as time inconsistency.

Accepted Answer

A) True 
 B)False

Question 20

Brain scientists have found that the human brain devotes more neurons toward processing and interpreting visual information than it does to anything else. Therefore,

Accepted Answer

A)  we can always believe what our eyes tell us. 
B)  we should only believe what our eyes tell us. 
C)  since our eyes can fool us, we probably make mental mistakes in other areas too. 
D)  behavioral and neoclassical economists agree that our visual impressions are always right. 
A)  we can always believe what our eyes tell us. 
B)  we should only believe what our eyes tell us. 
C)  since our eyes can fool us, we probably make mental mistakes in other areas too. 
D)  behavioral and neoclassical economists agree that our visual impressions are always right.

Exam 8: Behavioral Economics

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

When gasoline at $3.60/gallon looks relatively cheap after a period of $5/gallon gas, that's an illustration of the

Behavioral economics developed as a field of study that looks into how people make rational decisions based on self-interest.

Prospect theory would suggest that

The status quo effect suggests that giving people more options is always good for them.

One major point of disagreement between neoclassical economics and behavioral economics is the assumption of rationality.

Prospect theory is based on behavioral economists' understanding of how people

Prospect theory and the work of behavioral economists confirm that consumers are economically rational.

Al regularly pays the full amount of taxes due, even though he could easily hide some of his income and reduce his tax burden, with no risk of getting caught. According to behavioral economics,

Cognitive biases are the result of

Heuristics generally help people to make decisions faster, but also to make more errors.

(Last Word) The United Kingdom's Behavioral Insights Team substantially increased the amount of income tax collected each year by

The persistence of some "urban legends" and some myths is a reflection of the

Wall Street bosses who believed that the huge profits of their firms prior to the financial crisis that started in 2007 was their personal accomplishment and that the financial crisis was due to overregulation by government illustrates the

One of the important contributions of behavioral economics is the focus on how people make decisions involving

Self-control problems, say, among people on a diet, is caused by the cognitive bias known as time inconsistency.

Brain scientists have found that the human brain devotes more neurons toward processing and interpreting visual information than it does to anything else. Therefore,

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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