Question 1

Behavioral economists put significant emphasis on using models to

Accepted Answer

A)  predict decisions, but not so much to understand how those decisions are made. 
B)  predict decisions and also to understand how those decisions are made. 
C)  understand decision processes, but not the prediction of the decision itself. 
D)  understand people's actions, but not what drives people to act in certain ways. 
A)  predict decisions, but not so much to understand how those decisions are made. 
B)  predict decisions and also to understand how those decisions are made. 
C)  understand decision processes, but not the prediction of the decision itself. 
D)  understand people's actions, but not what drives people to act in certain ways.

Question 2

Susie knows that too many sugary treats, while delicious when eaten, have long-term adverse effects on weight and health. Based on this information, a neoclassical economist would expect Susie to

Accepted Answer

A)  carefully weigh the short-term benefits against the long-term costs and make a rational decision about how many treats to eat. 
B)  eat more sugary treats than is optimal, as she likely gives more weight to present events and outcomes than to ones in the future. 
C)  give away most of her sugary treats in an effort to resist temptation. 
D)  determine her fair share of the sugary treats available, and only eat those. 
A)  carefully weigh the short-term benefits against the long-term costs and make a rational decision about how many treats to eat. 
B)  eat more sugary treats than is optimal, as she likely gives more weight to present events and outcomes than to ones in the future. 
C)  give away most of her sugary treats in an effort to resist temptation. 
D)  determine her fair share of the sugary treats available, and only eat those.

Question 3

Heuristics generally operate in brain System 2.

Accepted Answer

A) True 
 B)False

Question 4

"Impulse buying" is often the result of a

Accepted Answer

A)  rational optimizing decision in response to incentives and prices. 
B)  precise estimation of one's marginal utilities and price comparisons. 
C)  systematic nonrational behavior that marketers can take advantage of. 
D)  random error in a consumer's behavior that is not predictable. 
A)  rational optimizing decision in response to incentives and prices. 
B)  precise estimation of one's marginal utilities and price comparisons. 
C)  systematic nonrational behavior that marketers can take advantage of. 
D)  random error in a consumer's behavior that is not predictable.

Question 5

"Time inconsistency" refers to the

Accepted Answer

A)  tendency for policies with high short-run benefits to have high long-run costs. 
B)  fallacy that what is true for the short run must be true for the long run. 
C)  tendency to regularly misjudge in the present what you will do in the future. 
D)  tendency to misjudge how long it will take to accomplish a future task. 
A)  tendency for policies with high short-run benefits to have high long-run costs. 
B)  fallacy that what is true for the short run must be true for the long run. 
C)  tendency to regularly misjudge in the present what you will do in the future. 
D)  tendency to misjudge how long it will take to accomplish a future task.

Question 6

Behavioral economists believe that the human brain is generally

Accepted Answer

A)  efficient and accurate. 
B)  efficient but prone to errors. 
C)  inefficient but accurate. 
D)  inefficient and prone to errors. 
A)  efficient and accurate. 
B)  efficient but prone to errors. 
C)  inefficient but accurate. 
D)  inefficient and prone to errors.

Question 7

In the face of rising costs, some firms reduce the quality of the goods they produce rather than maintain quality and increase prices. How would behavioral economics explain this strategy?

Accepted Answer

A)  People have an aversion to losses, and consumers are more likely to feel the loss of a price increase than a quality reduction. 
B)  Consumers are more tolerant of diminished quality because diminishing marginal utility causes people to get rid of goods sooner than in the past. 
C)  Firms are myopic in their decision making, with little regard for future profitability. 
D)  The availability heuristic will cause people to buy whatever is offered, regardless of the quality. 
A)  People have an aversion to losses, and consumers are more likely to feel the loss of a price increase than a quality reduction. 
B)  Consumers are more tolerant of diminished quality because diminishing marginal utility causes people to get rid of goods sooner than in the past. 
C)  Firms are myopic in their decision making, with little regard for future profitability. 
D)  The availability heuristic will cause people to buy whatever is offered, regardless of the quality.

Question 8

Regarding people's preferences, behavioral economists observe that these preferences are

Accepted Answer

A)  stable and not affected by context. 
B)  fluid and easily influenced by framing. 
C)  readily and accurately predictable. 
D)  consistent from one period to the next. 
A)  stable and not affected by context. 
B)  fluid and easily influenced by framing. 
C)  readily and accurately predictable. 
D)  consistent from one period to the next.

Question 9

When someone tries to "multitask" despite mounting evidence that multitasking is actually inefficient, this illustrates

Accepted Answer

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

Question 10

Most people's natural aversion against complex mathematical problems is an example of

Accepted Answer

A)  confirmation bias. 
B)  a mental heuristic. 
C)  rational choice. 
D)  cognitive bias. 
A)  confirmation bias. 
B)  a mental heuristic. 
C)  rational choice. 
D)  cognitive bias.

Question 11

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. Assuming Gina is interested in gaining financially from the experience and that she understands behavioral economics, we would expect her to

Accepted Answer

A)  offer the same relative split ($800/$200), knowing that Henry will accept the offer because the dollar amount he would forgo by rejecting it is substantial. 
B)  offer a more unequal split ($900/$100) in order to gain more for herself and figuring Henry will accept the split because $100 is better than nothing. 
C)  offer a more equal split ($700/$300) to increase the probability that Henry will accept the offer. 
D)  offer Henry more than half of the pot to ensure acceptance of the offer. 
A)  offer the same relative split ($800/$200), knowing that Henry will accept the offer because the dollar amount he would forgo by rejecting it is substantial. 
B)  offer a more unequal split ($900/$100) in order to gain more for herself and figuring Henry will accept the split because $100 is better than nothing. 
C)  offer a more equal split ($700/$300) to increase the probability that Henry will accept the offer. 
D)  offer Henry more than half of the pot to ensure acceptance of the offer.

Question 12

One explanation for why major construction projects often get completed way behind schedule is the

Accepted Answer

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

Question 13

The endowment effect describes when people value a good more when they own it than when they don't.

Accepted Answer

A) True 
 B)False

Question 14

According to behavioral economics, the difficulty among many people to stick to a diet or an exercise plan is partly explained by

Accepted Answer

A)  myopia. 
B)  mental accounting. 
C)  anchoring. 
D)  framing. 
A)  myopia. 
B)  mental accounting. 
C)  anchoring. 
D)  framing.

Question 15

Because neoclassical economists assume that people are rational decision makers, they

Accepted Answer

A)  are able to make better predictions about economic behaviors and outcomes. 
B)  ignore the mental processes by which these decisions are made. 
C)  believe that people never make suboptimal decisions. 
D)  believe it is best to limit the number of options people have available. 
A)  are able to make better predictions about economic behaviors and outcomes. 
B)  ignore the mental processes by which these decisions are made. 
C)  believe that people never make suboptimal decisions. 
D)  believe it is best to limit the number of options people have available.

Question 16

Precommitments are a tool designed to overcome time inconsistency.

Accepted Answer

A) True 
 B)False

Question 17

According to behavioral economists, people's preferences toward a particular outcome

Accepted Answer

A)  depend heavily on the contextual information that defines whether that outcome is a gain or a loss. 
B)  are context independent because the same state of being is created regardless of one's previous circumstances. 
C)  differ across people but are fixed for any given individual. 
D)  depend primarily on genetics rather than environmental or contextual forces. 
A)  depend heavily on the contextual information that defines whether that outcome is a gain or a loss. 
B)  are context independent because the same state of being is created regardless of one's previous circumstances. 
C)  differ across people but are fixed for any given individual. 
D)  depend primarily on genetics rather than environmental or contextual forces.

Question 18

Heuristics can be exploited to lead people to positive outcomes.

Accepted Answer

A) True 
 B)False

Question 19

According to behavioral economics, cognitive biases

Accepted Answer

A)  create errors in decision making, but these errors are random and follow no particular pattern. 
B)  occur but are not prevalent enough to distort the behavioral predictions of neoclassical economics. 
C)  are misunderstandings or misperceptions that cause systematic error. 
D)  are solely the result of faulty heuristics. 
A)  create errors in decision making, but these errors are random and follow no particular pattern. 
B)  occur but are not prevalent enough to distort the behavioral predictions of neoclassical economics. 
C)  are misunderstandings or misperceptions that cause systematic error. 
D)  are solely the result of faulty heuristics.

Question 20

Key features of so-called nudges include the following, except that

Accepted Answer

A)  they are subtle. 
B)  they induce changes in behavior without bullying or coercion. 
C)  they involve significant monetary incentives. 
D)  they can be viewed by some as manipulation. 
A)  they are subtle. 
B)  they induce changes in behavior without bullying or coercion. 
C)  they involve significant monetary incentives. 
D)  they can be viewed by some as manipulation.

Exam 8: Behavioral Economics

Behavioral economists put significant emphasis on using models to

Susie knows that too many sugary treats, while delicious when eaten, have long-term adverse effects on weight and health. Based on this information, a neoclassical economist would expect Susie to

Heuristics generally operate in brain System 2.

"Impulse buying" is often the result of a

"Time inconsistency" refers to the

Behavioral economists believe that the human brain is generally

In the face of rising costs, some firms reduce the quality of the goods they produce rather than maintain quality and increase prices. How would behavioral economics explain this strategy?

Regarding people's preferences, behavioral economists observe that these preferences are

When someone tries to "multitask" despite mounting evidence that multitasking is actually inefficient, this illustrates

Most people's natural aversion against complex mathematical problems is an example of

One explanation for why major construction projects often get completed way behind schedule is the

The endowment effect describes when people value a good more when they own it than when they don't.

According to behavioral economics, the difficulty among many people to stick to a diet or an exercise plan is partly explained by

Because neoclassical economists assume that people are rational decision makers, they

Precommitments are a tool designed to overcome time inconsistency.

According to behavioral economists, people's preferences toward a particular outcome

Heuristics can be exploited to lead people to positive outcomes.

According to behavioral economics, cognitive biases

Key features of so-called nudges include the following, except that

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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