Exam 8: Behavioral Economics

Neoclassical economics and behavioral economics are similar in the assumption that people are capable of making accurate, sometimes complex, calculations with respect to their utility-maximizing decisions.

Behavioral economists believe that people

Credit card companies put a low "minimum required payment" on people's bills in the hope that people will send in low payments, thereby allowing the card companies to earn more interest. The companies are trying to exploit the

Sellers' sense of fairness is always consistent with the notion of rational self-interest of neoclassical economics.

Neoclassical theory suggests that to the extent impulse buying occurs, it is infrequent and does not affect the ability of economic models to predict behavior.

(Consider This) The hedonic treadmill refers to a phenomenon where

Heuristics generally help people make fewer errors in their decisions.

Behavioral economists suggest that the reason why many consumers tend to stick to one brand in things that they often buy, like food items, is people's tendency to have the

The threat of rejection is part of what makes the invisible hand a valid metaphor for how the market system works.

Some people's tendency to believe that they are better than average at making judgments or opinions is called the

Behavioral economic theories are developed based on the following, except

Scientists studying human behavior have found that people tend to

According to behavioral economists, the human brain frequently employs heuristics because

Myopia means

Behavioral economists believe that while people try to make rational decisions, they are frequently subject to systematic errors.

Heuristics

What are the two categories of cognitive biases identified by behavioral economists?

The tendency of people to believe that something they own is more valuable than an identical item that they do not own is known in prospect theory as the

According to behavioral economics, advertising works because it

One major consequence of the framing effect is that