Exam 29: Behavioral Economics

The following statement is a defense of conventional models of consumer behavior against the objections of behavioral economists: Even if many participants in a market do not behave rationally, those who consistently maximize utility will have the greatest effect on market prices and outcomes.

According to a recent New York Times article, "Bank of America debit card customers can agree in advance to round up their purchases to the next dollar, putting the extra cents into a savings account." Why might customers want to commit to this mechanism rather than make deposits to their savings accounts on their own?

An article in the October 15, 2005, edition of the Wall Street Journal described the popularity with New York lawyers and stock brokers of a new gym that hires ex-Marines as fitness trainers.The gym is run with a boot camp motif.Which of the following behavioral economic concepts would help explain the existence of this gym?

Deb plans and prepares her meals 1 month in advance.Scott eats out for lunch every day.According to observations from behavioral economics, Scott will eat more varied meals than Deb.

A house was for sale for 9 months with no offers at $350,000.It was taken off the market, and relisted 1 month later at $399,500 and sold in 2 weeks.Which of the following behavioral economic concepts could explain this scenario?

If a coin is tossed, and the results are 6 consecutive tails (TTTTTT), this is conclusive evidence that the coin is not a fair coin.

A stingy health maintenance organization (HMO)gives its customers diagnosed with cancer a choice between surgery and radiation therapy, but not both.The brochure they send to their customers describes surgery as 80% successful, but says that 2 out of 10 patients who choose radiation will die.If customers were given a choice between surgery and radiation therapy, which of the following scenarios would most likely occur?

A new DVD of lectures on the topic of macro economics and personal hygiene is being marketed on the Internet as a remedy for insomnia.As an experiment, the marketing firm wants to direct half of Web hits to a page that advertises the DVD as 90% successful in inducing sleep while the other half are directed to a page that advertises the DVD as failing to induce sleep 10% of the time.Would you expect equal numbers of sales from the 2 advertising approaches? Explain.

If Fred were to consume $1,050 1 year from now, he would consider this as good as spending $1,000 today.He would consider $1,628.89 of consumption 10 years into the future equivalent to $1,000 of consumption today.If the interest rate is 5%, Fred preferences

Which of the following is NOT an example of the anchoring effect (i.e., choices are affected by spurious information)?

Psychologists and behavioral economists argue that preferences are "discovered," as opposed to a preexisting guide to choice.

John is doing very well in Intermediate Micro economics, but hires a graduate student to spend 1 hour a week with him to do workbook problems together.John always gets every problem correct without help from the graduate student, but he insists on continuing the relationship.Is there a behavioral economic explanation of why this is rational? Explain.

In an experiment on risk aversion and inconsistency, a group of people were given the option to accept or reject the following gamble: 50% chance to win $150, 50% chance to lose $100.Which of the following scenarios is most accurate and would most likely occur?

With several additional mutations, the bird flu, whose victims to date are mostly poultry, could become a global epidemic.Suppose there are 2 possible courses of action public health officials could take.For treatment A, the lives of 1 million people out of the 10 million affected would be saved.For treatment B, 90% of those infected would not be helped and would die.If infected persons were given a choice between treatments A and B, which of the following scenarios would most likely occur?