Question 1

Between System 1 and System 2 in the brain,System 1 makes most of the decisions.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following sets of personal characteristics best reflects what behavioral economists assume about how people make decisions?

Accepted Answer

A)  People are irrational,are prone to systematic errors,have stable preferences,and care about fairness. 
B)  People are rational,adjust for errors,have stable preferences,and easily resist temptation. 
C)  People care deeply about fairness,eagerly and accurately calculate ways to help others,assess future and present options equally well,and resist temptations in their selflessness. 
D)  People have preferences that depend on context,avoid and are bad at computation,often give in to temptation,and are often selfless in their behavior. 
A)  People are irrational,are prone to systematic errors,have stable preferences,and care about fairness. 
B)  People are rational,adjust for errors,have stable preferences,and easily resist temptation. 
C)  People care deeply about fairness,eagerly and accurately calculate ways to help others,assess future and present options equally well,and resist temptations in their selflessness. 
D)  People have preferences that depend on context,avoid and are bad at computation,often give in to temptation,and are often selfless in their behavior.

Question 3

John's friend Rosika won a major lottery jackpot.Seeing this,and despite the fact that millions don't win and the odds of winning are infinitesimal,John goes out and buys a bunch of lottery tickets despite struggling financially.John's decision to buy the lottery tickets under these circumstances would best be explained by the:

Accepted Answer

A)  hindsight bias. 
B)  self-serving bias. 
C)  confirmation bias. 
D)  availability heuristic. 
A)  hindsight bias. 
B)  self-serving bias. 
C)  confirmation bias. 
D)  availability heuristic.

Question 4

Precommitments are a tool designed to overcome time inconsistency.

Accepted Answer

A) True 
 B)False

Question 5

A company has designed an alarm clock that "runs and hides" after going off,forcing the person to get up and find the alarm clock if he or she wants to shut off the alarm.According to behavioral economists:

Accepted Answer

A)  it is unlikely to alter people's tendency to shut off the alarm and ultimately oversleep. 
B)  the alarm clock keeps people from hitting the snooze button and taking advantage of the availability heuristic. 
C)  the alarm clock serves as a precommitment device,helping the user to stick to the originally planned wake-up time. 
D)  overconfidence effects will discourage use of such devices. 
A)  it is unlikely to alter people's tendency to shut off the alarm and ultimately oversleep. 
B)  the alarm clock keeps people from hitting the snooze button and taking advantage of the availability heuristic. 
C)  the alarm clock serves as a precommitment device,helping the user to stick to the originally planned wake-up time. 
D)  overconfidence effects will discourage use of such devices.

Question 6

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

Question 7

Salary smoothing,automatic payroll deductions,and early withdrawal penalties are all examples of:

Accepted Answer

A)  mechanisms imposed by companies to extract more from their workers and customers. 
B)  policies that do not fundamentally alter decisions because they do not change the benefits or costs of an action. 
C)  precommitments. 
D)  hardwired heuristics. 
A)  mechanisms imposed by companies to extract more from their workers and customers. 
B)  policies that do not fundamentally alter decisions because they do not change the benefits or costs of an action. 
C)  precommitments. 
D)  hardwired heuristics.

Question 8

(Consider This)Kara was earning $40,000 per year.When her income rose to $60,000 per year,she enjoyed the higher level of consumption for a while,but eventually she was no more happy than when she earned $40,000 (assume prices didn't change over this time period).Economist Richard Easterlin described this as:

Accepted Answer

A)  anchoring. 
B)  the endowment effect. 
C)  irrational economic behavior. 
D)  the hedonic treadmill. 
A)  anchoring. 
B)  the endowment effect. 
C)  irrational economic behavior. 
D)  the hedonic treadmill.

Question 9

Heuristics can be exploited to lead people to positive outcomes.

Accepted Answer

A) True 
 B)False

Question 10

Heuristics generally operate in brain System 2.

Accepted Answer

A) True 
 B)False

Question 11

Carlos and Darla are representative individuals playing the dictator game.Carlos is assigned the role of dictator and given $20 to split between the two of them.Based on previous experiments with this game by behavioral economists,about a third of the time we would expect:

Accepted Answer

A)  Carlos to keep all of the money for himself. 
B)  Carlos to give all of the money to Darla. 
C)  Carlos to split the money evenly with Darla. 
D)  Carlos to split the money,keeping a little more than half for himself. 
A)  Carlos to keep all of the money for himself. 
B)  Carlos to give all of the money to Darla. 
C)  Carlos to split the money evenly with Darla. 
D)  Carlos to split the money,keeping a little more than half for himself.

Question 12

Dan was certain that his upcoming economics test would be so easy that he could wait to study until the night before and still do well on the exam.When he cracked open his book and notes the night before the exam,he realized he should've started studying earlier.According to behavioral economics,Dan's error was caused primarily by:

Accepted Answer

A)  a planning fallacy. 
B)  an overconfidence effect. 
C)  framing effects. 
D)  hindsight bias. 
A)  a planning fallacy. 
B)  an overconfidence effect. 
C)  framing effects. 
D)  hindsight bias.

Question 13

Selfishness is:

Accepted Answer

A)  exhibited more strongly in the ultimatum game than in the dictator game. 
B)  exhibited more strongly in the dictator game than in the ultimatum game. 
C)  exhibited equally strongly in both the ultimatum and dictator games. 
D)  rarely exhibited in either the ultimatum or dictator games. 
A)  exhibited more strongly in the ultimatum game than in the dictator game. 
B)  exhibited more strongly in the dictator game than in the ultimatum game. 
C)  exhibited equally strongly in both the ultimatum and dictator games. 
D)  rarely exhibited in either the ultimatum or dictator games.

Question 14

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 15

Which of the following statements best reflects how a behavioral economist views individual decision making?

Accepted Answer

A)  Alex makes wrong decisions sometimes,but usually it is only when he has been given bad information. 
B)  Kara carefully calculates and weighs the expected benefits and costs of every option before making a decision. 
C)  Alicia may appear to care about others,but even her seemingly altruistic behaviors are really about furthering her own interests. 
D)  Balin tries to make good,well-thought-out decisions,but his desire for utility in the present means that he often gives in to costly temptations. 
A)  Alex makes wrong decisions sometimes,but usually it is only when he has been given bad information. 
B)  Kara carefully calculates and weighs the expected benefits and costs of every option before making a decision. 
C)  Alicia may appear to care about others,but even her seemingly altruistic behaviors are really about furthering her own interests. 
D)  Balin tries to make good,well-thought-out decisions,but his desire for utility in the present means that he often gives in to costly temptations.

Question 16

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 17

Which of the following best explains the difference between neoclassical economics and behavioral economics?

Accepted Answer

A)  Neoclassical economics believes that government should play a minimal role in the economy,while behavioral economics calls for a more active role for government. 
B)  Neoclassical economics assumes that people are rational in their decision making,while behavioral economics believes people make systematic errors. 
C)  There is no real difference;behavioral economics just studies more intently how the rational decision-making process works. 
D)  Neoclassical economics no longer offers valid explanations for economic outcomes,while behavioral economics does. 
A)  Neoclassical economics believes that government should play a minimal role in the economy,while behavioral economics calls for a more active role for government. 
B)  Neoclassical economics assumes that people are rational in their decision making,while behavioral economics believes people make systematic errors. 
C)  There is no real difference;behavioral economics just studies more intently how the rational decision-making process works. 
D)  Neoclassical economics no longer offers valid explanations for economic outcomes,while behavioral economics does.

Question 18

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 19

A central focus of prospect theory is:

Accepted Answer

A)  how people deal with "bads," as well as how they deal with "goods." 
B)  optimizing precious metal discovery and extraction. 
C)  maximizing returns from investment portfolios. 
D)  how people make rational decisions despite having incomplete information. 
A)  how people deal with "bads," as well as how they deal with "goods." 
B)  optimizing precious metal discovery and extraction. 
C)  maximizing returns from investment portfolios. 
D)  how people make rational decisions despite having incomplete information.

Question 20

In the financial crisis that precipitated the 2007-2009 recession,people systematically overestimated their prospects for financial gain.Which branch of economics would most likely have expected to predict this?

Accepted Answer

A)  Neoclassical economics. 
B)  Keynesian economics. 
C)  Behavioral economics. 
D)  Classical economics. 
A)  Neoclassical economics. 
B)  Keynesian economics. 
C)  Behavioral economics. 
D)  Classical economics.

Between System 1 and System 2 in the brain,System 1 makes most of the decisions.

Which of the following sets of personal characteristics best reflects what behavioral economists assume about how people make decisions?

Precommitments are a tool designed to overcome time inconsistency.

A company has designed an alarm clock that "runs and hides" after going off,forcing the person to get up and find the alarm clock if he or she wants to shut off the alarm.According to behavioral economists:

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

Salary smoothing,automatic payroll deductions,and early withdrawal penalties are all examples of:

Heuristics can be exploited to lead people to positive outcomes.

Heuristics generally operate in brain System 2.

Carlos and Darla are representative individuals playing the dictator game.Carlos is assigned the role of dictator and given $20 to split between the two of them.Based on previous experiments with this game by behavioral economists,about a third of the time we would expect:

Selfishness is:

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 statements best reflects how a behavioral economist views individual decision making?

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 best explains the difference between neoclassical economics and behavioral economics?

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

A central focus of prospect theory is:

In the financial crisis that precipitated the 2007-2009 recession,people systematically overestimated their prospects for financial gain.Which branch of economics would most likely have expected to predict this?

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

Between System 1 and System 2 in the brain,System 1 makes most of the decisions.

Which of the following sets of personal characteristics best reflects what behavioral economists assume about how people make decisions?

Precommitments are a tool designed to overcome time inconsistency.

A company has designed an alarm clock that "runs and hides" after going off,forcing the person to get up and find the alarm clock if he or she wants to shut off the alarm.According to behavioral economists:

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

Salary smoothing,automatic payroll deductions,and early withdrawal penalties are all examples of:

Heuristics can be exploited to lead people to positive outcomes.

Heuristics generally operate in brain System 2.

Carlos and Darla are representative individuals playing the dictator game.Carlos is assigned the role of dictator and given $20 to split between the two of them.Based on previous experiments with this game by behavioral economists,about a third of the time we would expect:

Selfishness is:

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 statements best reflects how a behavioral economist views individual decision making?

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 best explains the difference between neoclassical economics and behavioral economics?

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

A central focus of prospect theory is:

In the financial crisis that precipitated the 2007-2009 recession,people systematically overestimated their prospects for financial gain.Which branch of economics would most likely have expected to predict this?

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