Question 1

Which of the following statements best reflects behavioral economists' views on self-interest versus the interests of others?

Accepted Answer

A)  Self-interest dominates human behavior; even seemingly selfless behavior is driven by self-interest. 
B)  Most people care so deeply about others that self-interest is a minor consideration in their decision making. 
C)  The system is most efficient when people focus solely on their self-interest and allow the invisible hand to work out what is best for society. 
D)  People are always self-interested to a degree, but their behavior is also affected by moral and ethical considerations. 
A)  Self-interest dominates human behavior; even seemingly selfless behavior is driven by self-interest. 
B)  Most people care so deeply about others that self-interest is a minor consideration in their decision making. 
C)  The system is most efficient when people focus solely on their self-interest and allow the invisible hand to work out what is best for society. 
D)  People are always self-interested to a degree, but their behavior is also affected by moral and ethical considerations.

Question 2

"Heuristics" used by the human brain are one of the reasons why

Accepted Answer

A)  our preferences are quite stable and consistent. 
B)  neoclassical economic models accurately predict human behavior. 
C)  human perception is susceptible to context and prone to error. 
D)  the utility-maximizing model of decision making is precise. 
A)  our preferences are quite stable and consistent. 
B)  neoclassical economic models accurately predict human behavior. 
C)  human perception is susceptible to context and prone to error. 
D)  the utility-maximizing model of decision making is precise.

Question 3

Which of the following would represent a systematic error?

Accepted Answer

A)  Eddie regularly overspends. Friends and family bail him out, however, so he always ends up with what he wants. 
B)  Ellen paid good money for a used car that is in constant need of repair. 
C)  Sparky determines that he has to reduce donut consumption to lose weight but always ends up eating the ones provided in the break room at work. 
D)  Clark makes regular math errors at work, sometimes coming out with figures too high, other times too low. 
A)  Eddie regularly overspends. Friends and family bail him out, however, so he always ends up with what he wants. 
B)  Ellen paid good money for a used car that is in constant need of repair. 
C)  Sparky determines that he has to reduce donut consumption to lose weight but always ends up eating the ones provided in the break room at work. 
D)  Clark makes regular math errors at work, sometimes coming out with figures too high, other times too low.

Question 4

(Consider This) Solar City helped homeowners overcome their myopia by

Accepted Answer

A)  providing improved information about the benefits of solar systems. 
B)  framing the installation of solar systems against the environmental costs of nonrenewable energy sources. 
C)  eliminating the upfront costs of solar systems. 
D)  appealing to homeowners' sense of fairness with regard to environmental responsibility. 
A)  providing improved information about the benefits of solar systems. 
B)  framing the installation of solar systems against the environmental costs of nonrenewable energy sources. 
C)  eliminating the upfront costs of solar systems. 
D)  appealing to homeowners' sense of fairness with regard to environmental responsibility.

Question 5

Which of the following facts is not a basis for prospect theory in behavioral economics?

Accepted Answer

A)  People evaluate gains and losses in relation to the status quo, not in absolute terms. 
B)  People feel losses much more intensely than they feel gains. 
C)  People experience diminishing marginal disutility for losses. 
D)  People do not experience diminishing marginal utility for gains. 
A)  People evaluate gains and losses in relation to the status quo, not in absolute terms. 
B)  People feel losses much more intensely than they feel gains. 
C)  People experience diminishing marginal disutility for losses. 
D)  People do not experience diminishing marginal utility for gains.

Question 6

When the ultimatum game is played for larger rather than smaller amounts of money, behavioral economists have found that when the proposed splits are very uneven

Accepted Answer

A)  responders are much more likely to accept the offer because of the amount of money involved. 
B)  responders are no more likely to accept the offer if they consider the split to be unfair. 
C)  responders are much less likely to accept the offer, because their sense of unfairness is heightened with larger amounts of money. 
D)  responders will accept offers at a higher rate but will exact greater emotional penalties on the proposer. 
A)  responders are much more likely to accept the offer because of the amount of money involved. 
B)  responders are no more likely to accept the offer if they consider the split to be unfair. 
C)  responders are much less likely to accept the offer, because their sense of unfairness is heightened with larger amounts of money. 
D)  responders will accept offers at a higher rate but will exact greater emotional penalties on the proposer.

Question 7

Which of the following individuals received a Nobel Prize in economics for his work in behavioral economics?

Accepted Answer

A)  Daniel Kahneman 
B)  Richard Thaler 
C)  John Wannamaker 
D)  Richard Easterlin 
A)  Daniel Kahneman 
B)  Richard Thaler 
C)  John Wannamaker 
D)  Richard Easterlin

Question 8

Dorothy likes to invest in gold as part of her overall financial investment portfolio, as her gut tells her it will increase dramatically in value. Her favorite and generally only source of investment advice is Wizard's Gold Hour on the OZ cable channel. As a result of this advice, Dorothy's portfolio mix is suboptimal, as it is too heavily weighted in gold. Behavioral economists would say that Dorothy suffers from

Accepted Answer

A)  framing effects. 
B)  confirmation bias. 
C)  self-serving bias. 
D)  planning fallacy. 
A)  framing effects. 
B)  confirmation bias. 
C)  self-serving bias. 
D)  planning fallacy.

Question 9

Those who believe that "there is no such thing as bad publicity" base this argument on which of the following ideas from behavioral economics?

Accepted Answer

A)  The recognition heuristic will overcome any negative emotional associations. 
B)  The recognition heuristic will prevent people from incorporating negative information into their decision-making process. 
C)  Framing effects will diminish the negative emotions associated with most bad publicity. 
D)  Self-serving biases will make people "look the other way" and ignore bad publicity. 
A)  The recognition heuristic will overcome any negative emotional associations. 
B)  The recognition heuristic will prevent people from incorporating negative information into their decision-making process. 
C)  Framing effects will diminish the negative emotions associated with most bad publicity. 
D)  Self-serving biases will make people "look the other way" and ignore bad publicity.

Question 10

Junior collects baseball cards. He owns one Felix Hernandez card that sells in most shops for $15. He is interested in buying a different Felix card that also sells for $15. According to behavioral economics,

Accepted Answer

A)  Junior should value the two cards equally and be willing to trade one for the other. 
B)  the availability heuristic will cause Junior to value more highly the card he doesn't have. 
C)  the endowment effect would suggest that Junior would not be willing to trade the card he has for the card he doesn't have. 
D)  prospect theory says he will buy the second card, as both have the potential to appreciate in value. 
A)  Junior should value the two cards equally and be willing to trade one for the other. 
B)  the availability heuristic will cause Junior to value more highly the card he doesn't have. 
C)  the endowment effect would suggest that Junior would not be willing to trade the card he has for the card he doesn't have. 
D)  prospect theory says he will buy the second card, as both have the potential to appreciate in value.

Question 11

Which of the following is not an implication of hardwired heuristics?

Accepted Answer

A)  Getting people to make positive behavioral changes is about putting them in situations where heuristics kick in and lead them to the desired outcome. 
B)  Getting people to make better decisions is simply a matter of providing more information and more options. 
C)  People who know and understand hardwired tendencies of others can take advantage of situations. 
D)  Even when confronted with irrefutable information that a behavior is detrimental, people still may not change what they're doing. 
A)  Getting people to make positive behavioral changes is about putting them in situations where heuristics kick in and lead them to the desired outcome. 
B)  Getting people to make better decisions is simply a matter of providing more information and more options. 
C)  People who know and understand hardwired tendencies of others can take advantage of situations. 
D)  Even when confronted with irrefutable information that a behavior is detrimental, people still may not change what they're doing.

Question 12

The "anchoring" phenomenon observed by behavioral economists refers to the fact that people's estimates of the value of things are affected by

Accepted Answer

A)  recently considered information. 
B)  their childhood memories. 
C)  irrelevant data always. 
D)  relevant information solely. 
A)  recently considered information. 
B)  their childhood memories. 
C)  irrelevant data always. 
D)  relevant information solely.

Question 13

Which of the following do behavioral economists blame for why many households in sunny areas resist solar panels because they focus on the upfront installation costs instead of the larger long-run benefits that accrue from the solar panels?

Accepted Answer

A)  framing effects 
B)  anchoring 
C)  myopia 
D)  time Inconsistency 
A)  framing effects 
B)  anchoring 
C)  myopia 
D)  time Inconsistency

Question 14

Balin purchases fair trade cocoa out of concern for workers' rights and environmental sustainability. He could purchase cocoa of equal quality at a lower price. Behavioral economists would consider Balin's purchase

Accepted Answer

A)  unusual in that it demonstrates concern for others. 
B)  purely self-interested but motivated by something other than his financial well-being. 
C)  as evidence that Balin is not acting purely in his self-interest. 
D)  a bad decision because it ignores important information that could improve Balin's well-being. 
A)  unusual in that it demonstrates concern for others. 
B)  purely self-interested but motivated by something other than his financial well-being. 
C)  as evidence that Balin is not acting purely in his self-interest. 
D)  a bad decision because it ignores important information that could improve Balin's well-being.

Question 15

The following are major observations made by behavioral economists regarding human behavior, except

Accepted Answer

A)  workers tend to spend and consume too much in the present, thus not saving enough for retirement. 
B)  people tend to stick with the default option when faced with various alternatives. 
C)  people behave in ways that seem irrational at first glance, but are really rational. 
D)  people often intentionally act in irrational ways. 
A)  workers tend to spend and consume too much in the present, thus not saving enough for retirement. 
B)  people tend to stick with the default option when faced with various alternatives. 
C)  people behave in ways that seem irrational at first glance, but are really rational. 
D)  people often intentionally act in irrational ways.

Question 16

The oft heard "I knew it all along" comment that many people make 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

The overconfidence effect exists when people underestimate their chances of being wrong.

Accepted Answer

A) True 
 B)False

Question 18

Because gun violence is portrayed frequently on television and in movies, people mistakenly assign too high of a probability that they will fall victim to gun violence and too low of a probability to more likely but less publicized events. This phenomenon illustrates

Accepted Answer

A)  the effect of the availability heuristic. 
B)  that people suffer from hindsight bias. 
C)  that events are poorly framed by the media. 
D)  the self-serving bias at work. 
A)  the effect of the availability heuristic. 
B)  that people suffer from hindsight bias. 
C)  that events are poorly framed by the media. 
D)  the self-serving bias at work.

Question 19

The threat of rejection in market transactions

Accepted Answer

A)  leads to higher prices, as sellers try to cover possible losses. 
B)  leads to better products and lower prices for consumers. 
C)  leads to less cooperation between buyers and sellers. 
D)  does all of these. 
A)  leads to higher prices, as sellers try to cover possible losses. 
B)  leads to better products and lower prices for consumers. 
C)  leads to less cooperation between buyers and sellers. 
D)  does all of these.

Question 20

Firms would rather shrink package sizes than raise prices because consumers will feel less of a loss from the change in package size.

Accepted Answer

A) True 
 B)False

Exam 8: Behavioral Economics

Which of the following statements best reflects behavioral economists' views on self-interest versus the interests of others?

"Heuristics" used by the human brain are one of the reasons why

Which of the following would represent a systematic error?

(Consider This) Solar City helped homeowners overcome their myopia by

Which of the following facts is not a basis for prospect theory in behavioral economics?

When the ultimatum game is played for larger rather than smaller amounts of money, behavioral economists have found that when the proposed splits are very uneven

Which of the following individuals received a Nobel Prize in economics for his work in behavioral economics?

Those who believe that "there is no such thing as bad publicity" base this argument on which of the following ideas from behavioral economics?

Junior collects baseball cards. He owns one Felix Hernandez card that sells in most shops for $15. He is interested in buying a different Felix card that also sells for $15. According to behavioral economics,

Which of the following is not an implication of hardwired heuristics?

The "anchoring" phenomenon observed by behavioral economists refers to the fact that people's estimates of the value of things are affected by

Which of the following do behavioral economists blame for why many households in sunny areas resist solar panels because they focus on the upfront installation costs instead of the larger long-run benefits that accrue from the solar panels?

Balin purchases fair trade cocoa out of concern for workers' rights and environmental sustainability. He could purchase cocoa of equal quality at a lower price. Behavioral economists would consider Balin's purchase

The following are major observations made by behavioral economists regarding human behavior, except

The oft heard "I knew it all along" comment that many people make illustrates the

The overconfidence effect exists when people underestimate their chances of being wrong.

Because gun violence is portrayed frequently on television and in movies, people mistakenly assign too high of a probability that they will fall victim to gun violence and too low of a probability to more likely but less publicized events. This phenomenon illustrates

The threat of rejection in market transactions

Firms would rather shrink package sizes than raise prices because consumers will feel less of a loss from the change in package size.

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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