Question 1

Time inconsistency refers to the persistent underestimation of how long a task will take to perform.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is a significant difference in the outcomes between the dictator game and the ultimatum game?

Accepted Answer

A)  There is little difference,as fairness considerations lead to similar splits of the money in both games. 
B)  The dictator game tends to result in a more even split of the money. 
C)  The ultimatum game tends to result in a more even split of the money. 
D)  Self-interest is revealed more strongly in the ultimatum game than in the dictator game. 
A)  There is little difference,as fairness considerations lead to similar splits of the money in both games. 
B)  The dictator game tends to result in a more even split of the money. 
C)  The ultimatum game tends to result in a more even split of the money. 
D)  Self-interest is revealed more strongly in the ultimatum game than in the dictator game.

Question 3

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

Accepted Answer

A)  Unevolved capacity for solving modern problems and faulty heuristics. 
B)  Bad information and lack of impulse control. 
C)  Lack of intellect and mental disorders. 
D)  Inability to reason and inability to delay gratification. 
A)  Unevolved capacity for solving modern problems and faulty heuristics. 
B)  Bad information and lack of impulse control. 
C)  Lack of intellect and mental disorders. 
D)  Inability to reason and inability to delay gratification.

Question 4

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

Accepted Answer

A)  people can't improve their economic well-being because prices increase as fast as wages. 
B)  people can't get out of debt because credit card companies use anchoring to get consumers to carry large balances on their accounts. 
C)  increasing our level of consumption doesn't make us any happier in the long term. 
D)  feelings of loss offset our feelings of gain,leaving us no happier in the long term. 
A)  people can't improve their economic well-being because prices increase as fast as wages. 
B)  people can't get out of debt because credit card companies use anchoring to get consumers to carry large balances on their accounts. 
C)  increasing our level of consumption doesn't make us any happier in the long term. 
D)  feelings of loss offset our feelings of gain,leaving us no happier in the long term.

Question 5

Fairness,according to behavioral economics:

Accepted Answer

A)  is too subjective to be considered in the analysis of economic behavior. 
B)  can be objectively standardized across individuals. 
C)  varies from one individual to another but still affects economic behavior in important ways. 
D)  matters to people,but because of self-interest fairness has little effect on their economic decisions. 
A)  is too subjective to be considered in the analysis of economic behavior. 
B)  can be objectively standardized across individuals. 
C)  varies from one individual to another but still affects economic behavior in important ways. 
D)  matters to people,but because of self-interest fairness has little effect on their economic decisions.

Question 6

(Consider This)The website Stickk.com appeals to what concept from behavioral economics to help people achieve goals?

Accepted Answer

A)  Cognitive therapy. 
B)  Availability heuristics. 
C)  Loss aversion. 
D)  Fairness. 
A)  Cognitive therapy. 
B)  Availability heuristics. 
C)  Loss aversion. 
D)  Fairness.

Question 7

Which of the following supermarket strategies to increase sales would be most consistent with a neoclassical economics (versus behavioral economics)approach?

Accepted Answer

A)  Holding posted prices constant but reducing package sizes. 
B)  Providing discounts for buying in bulk. 
C)  Placing the most frequently purchased items at the back of the store. 
D)  Positioning high-profit kids cereals on the lower shelves of the cereal aisle. 
A)  Holding posted prices constant but reducing package sizes. 
B)  Providing discounts for buying in bulk. 
C)  Placing the most frequently purchased items at the back of the store. 
D)  Positioning high-profit kids cereals on the lower shelves of the cereal aisle.

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

Adam and Becky both recently started new jobs.Both have determined that they should save 10 percent of their monthly income toward retirement.Adam's employer has no program established for payroll deduction,but he could easily set up automatic withdrawals to go into a retirement fund.Becky's employer automatically directs 8 percent of the paycheck into a retirement fund,but the employee can change the percentage deducted.Behavioral economists would expect:

Accepted Answer

A)  Adam to save more as he would set up a 10 percent automatic withdrawal while Becky would stay at the default of 8 percent. 
B)  Becky would save more,as both would tend to stay at the defaults provided by their employers. 
C)  them both to save 10 percent eventually,as both had predetermined that that was the optimal amount to save. 
D)  Becky to feel a greater sense of loss by seeing funds automatically withheld each month. 
A)  Adam to save more as he would set up a 10 percent automatic withdrawal while Becky would stay at the default of 8 percent. 
B)  Becky would save more,as both would tend to stay at the defaults provided by their employers. 
C)  them both to save 10 percent eventually,as both had predetermined that that was the optimal amount to save. 
D)  Becky to feel a greater sense of loss by seeing funds automatically withheld each month.

Question 10

"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 11

Buck carefully plans out an early morning exercise routine to lose weight and get fit.When it's time to work out,however,Buck just "doesn't feel up to it" and decides to sleep in.Behavioral economics would say that Buck:

Accepted Answer

A)  weighed the costs and benefits and made a rational economic decision to sleep in. 
B)  used System 1 of his brain to formulate his workout plan,but then gave in to System 2 when he chose to sleep in. 
C)  used System 2 of his brain to formulate his workout plan,but then gave in to System 1 when he chose to sleep in. 
D)  is fundamentally lazy and incapable of sticking to a workout plan. 
A)  weighed the costs and benefits and made a rational economic decision to sleep in. 
B)  used System 1 of his brain to formulate his workout plan,but then gave in to System 2 when he chose to sleep in. 
C)  used System 2 of his brain to formulate his workout plan,but then gave in to System 1 when he chose to sleep in. 
D)  is fundamentally lazy and incapable of sticking to a workout plan.

Question 12

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 13

Heuristics help people make faster,error-free decisions.

Accepted Answer

A) True 
 B)False

Question 14

Fatal automobile accidents occur much more frequently than do fatal airplane crashes,yet airplane crashes receive a disproportionate amount of media coverage.As a result,some people are overly fearful of flying in planes yet have no problem riding in cars.Which of the following cognitive biases best explains this disconnect between these people's fears and the statistical realities?

Accepted Answer

A)  Overconfidence effect. 
B)  Availability heuristic. 
C)  Self-serving bias. 
D)  Confirmation bias. 
A)  Overconfidence effect. 
B)  Availability heuristic. 
C)  Self-serving bias. 
D)  Confirmation bias.

Question 15

Because of "mental accounting:"

Accepted Answer

A)  people are better able to process price changes than changes in product sizes. 
B)  people tend to be less risk averse. 
C)  people pay too little on their monthly credit card bills. 
D)  people isolate purchases and sometimes make irrational decisions. 
A)  people are better able to process price changes than changes in product sizes. 
B)  people tend to be less risk averse. 
C)  people pay too little on their monthly credit card bills. 
D)  people isolate purchases and sometimes make irrational decisions.

Question 16

Natural disasters often cause shortages of critical supplies.What outcomes would neoclassical and behavioral economics typically predict from these events?

Accepted Answer

A)  Both would expect prices to rise significantly,whether from market forces or from self-interest overwhelming any sense of compassion for others. 
B)  Both would expect sellers to keep prices unchanged,whether to keep customers happy long-term or out of a sense of fairness. 
C)  Neoclassical economists would expect economic chaos and collapse,while behavioral economists would expect everyone to act cooperatively. 
D)  Neoclassical economists would expect prices to rise dramatically as a natural result of the greater scarcity,and behavioral economists would expect prices to increase less or not at all as people try not to take advantage of the situation. 
A)  Both would expect prices to rise significantly,whether from market forces or from self-interest overwhelming any sense of compassion for others. 
B)  Both would expect sellers to keep prices unchanged,whether to keep customers happy long-term or out of a sense of fairness. 
C)  Neoclassical economists would expect economic chaos and collapse,while behavioral economists would expect everyone to act cooperatively. 
D)  Neoclassical economists would expect prices to rise dramatically as a natural result of the greater scarcity,and behavioral economists would expect prices to increase less or not at all as people try not to take advantage of the situation.

Question 17

Framing effects may cause the same person to view the same new situation differently depending on whether that new situation makes him or her better or worse off.

Accepted Answer

A) True 
 B)False

Question 18

Behavioral economics recognizes that people frequently make errors,but these errors generally cancel out in such a way that neoclassical models are sufficient for predicting economic outcomes.

Accepted Answer

A) True 
 B)False

Question 19

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 20

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.

Time inconsistency refers to the persistent underestimation of how long a task will take to perform.

Which of the following is a significant difference in the outcomes between the dictator game and the ultimatum game?

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

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

Fairness,according to behavioral economics:

(Consider This)The website Stickk.com appeals to what concept from behavioral economics to help people achieve goals?

Which of the following supermarket strategies to increase sales would be most consistent with a neoclassical economics (versus behavioral economics)approach?

"Time inconsistency" refers to the:

Buck carefully plans out an early morning exercise routine to lose weight and get fit.When it's time to work out,however,Buck just "doesn't feel up to it" and decides to sleep in.Behavioral economics would say that Buck:

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

Heuristics help people make faster,error-free decisions.

Because of "mental accounting:"

Natural disasters often cause shortages of critical supplies.What outcomes would neoclassical and behavioral economics typically predict from these events?

Framing effects may cause the same person to view the same new situation differently depending on whether that new situation makes him or her better or worse off.

Behavioral economics recognizes that people frequently make errors,but these errors generally cancel out in such a way that neoclassical models are sufficient for predicting economic outcomes.

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

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 Cost of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition and Oligopoly

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

Filters

Exam 8: Behavioral Economics

Time inconsistency refers to the persistent underestimation of how long a task will take to perform.

Which of the following is a significant difference in the outcomes between the dictator game and the ultimatum game?

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

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

Fairness,according to behavioral economics:

(Consider This)The website Stickk.com appeals to what concept from behavioral economics to help people achieve goals?

Which of the following supermarket strategies to increase sales would be most consistent with a neoclassical economics (versus behavioral economics)approach?

"Time inconsistency" refers to the:

Buck carefully plans out an early morning exercise routine to lose weight and get fit.When it's time to work out,however,Buck just "doesn't feel up to it" and decides to sleep in.Behavioral economics would say that Buck:

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

Heuristics help people make faster,error-free decisions.

Because of "mental accounting:"

Natural disasters often cause shortages of critical supplies.What outcomes would neoclassical and behavioral economics typically predict from these events?

Framing effects may cause the same person to view the same new situation differently depending on whether that new situation makes him or her better or worse off.

Behavioral economics recognizes that people frequently make errors,but these errors generally cancel out in such a way that neoclassical models are sufficient for predicting economic outcomes.

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

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 Cost of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition and Oligopoly

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

Filters