Question 1

Josh will receive a salary of $300,000 next year.According to prospect theory:

Accepted Answer

A)   Josh will be happy with that amount regardless of what he has made in the past.
B)   Josh will only be happy with that salary if everyone else around him makes less than he does.
C)   Josh will only be happy with that salary if his cost of living has not increased.
D)   Josh's satisfaction with that salary depends on how much he made in the past.E) B) and D)
F) None of the above

Question 2

Behavioral economists believe that the human brain is generally:

Accepted Answer

A)   efficient and accurate.
B)   efficient but prone to errors.
C)   inefficient but accurate.
D)   inefficient and prone to errors.E) A) and D)
F) B) and D)

Question 3

Neoclassical economics and behavioral economics both recognize that people make errors in their decision making.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following would represent a systematic error?

Accepted Answer

A)   Eddie regularly overspends,but friends and family bail him out 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.E) B) and D)
F) None of the above

Question 5

Because of framing effects,a worker will be happy with a 5 percent raise regardless of how much of a raise her fellow employees receive.

Accepted Answer

A) True 
 B)False

Question 6

The process by which people isolate purchases and fail to consider all consumption options simultaneously is known as:

Accepted Answer

A)   framing.
B)   mental accounting.
C)   anchoring.
D)   the endowment effect.E) C) and D)
F) A) and B)

Question 7

Linda committed a traffic violation that resulted in an accident.She learns first that the violation will result in a $500 fine;she then learns that she will have to pay another $500 for damage caused in the accident.According to prospect theory,

Accepted Answer

A)   she will suffer as much disutility from paying for the accident damage as she does from paying the fine.
B)   she will suffer less disutility from paying for the accident damage than from paying the fine.
C)   she will suffer more disutility from paying for the accident damage than from paying the fine.
D)   she will feel less disutility from paying $1,000 than she would receive positive utility from receiving $1,000.E) A) and B)
F) A) and C)

Question 8

The results of running the dictator game experiments thousands of times have revealed to behavioral economists that:

Accepted Answer

A)   people's sense of fairness is fairly uniform across the population.
B)   most people have little concern for others when it comes to financial matters.
C)   individual feelings about fairness and generosity vary widely across the population.
D)   most people are willing to give more than they will keep for themselves.E) C) and D)
F) All of the above

Question 9

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

Accepted Answer

A)   people have consciously trained their brains to do so.
B)   these shortcuts minimize errors in decision making.
C)   they produce more optimal outcomes than do rational calculations of benefits and costs.
D)   they save energy and time in decision making.E) A) and B)
F) C) and D)

Question 10

Hardwired heuristics make it easy to change behavior by simply presenting people with better information.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is the best example of a precommitment used to overcome time inconsistency.

Accepted Answer

A)   Finding a running partner and setting a regular schedule of when you will run together.
B)   Deciding to save a percentage of each month's paycheck.
C)   Signing up for a free trial membership at the local gym.
D)   Buying an alarm clock.E) A) and B)
F) All of the above

Question 12

According to behavioral economists,the human brain:

Accepted Answer

A)   makes most decisions based on careful calculation of benefits and costs.
B)   uses evolutionary-developed heuristics to make many decisions.
C)   only develops heuristics for decision making after the same decision has been made multiple times using a rational framework of comparing benefits and costs.
D)   employs heuristics in decision making that are slow but generally error-free.E) A) and D)
F) B) and C)

Question 13

Neoclassical and behavioral economics are generally complementary.

Accepted Answer

A) True 
 B)False

Question 14

Heuristics:

Accepted Answer

A)   are rules of thumb that generate decisions that generally maximize net benefits.
B)   take a long time to develop and are therefore avoided by rational decision makers.
C)   are shortcuts that save time and energy in decision making.
D)   always waste mental resources by leading people to suboptimal outcomes.E) B) and C)
F) A) and B)

Question 15

People feel losses about 2.5 more intensely than they feel gains.

Accepted Answer

A) True 
 B)False

Question 16

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

Question 17

According to behavioral economists,someone suffering from myopia is most likely to:

Accepted Answer

A)   spend too little on present consumption and save more than is necessary for the future.
B)   vote only for economic policies that serve his or her short- and long-term interests.
C)   rely too much on System 2 of the brain.
D)   spend too much on present consumption and not save enough for the future.E) None of the above
F) All of the above

Question 18

Carlos and Darla are 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,if Carlos is a typical player,behavioral economists 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.E) B) and C)
F) A) and D)

Question 19

Which of the following is a significant difference in the behavior of the dictator/proposer between the dictator game and the ultimatum game?

Accepted Answer

A)   The dictator/proposer tends to be more generous in the ultimatum game.
B)   The dictator/proposer tends to be more generous in the dictator game.
C)   There is no systematic difference in the generosity of the dictator/proposer between the two games.
D)   Dictators/proposers demonstrate more emotion when playing the dictator game.E) B) and C)
F) All of the above

Question 20

Credit card companies require low minimum payments that impose significant interest costs on consumers choosing to pay the minimum.Recent legislation has required credit card companies to show on customer billing statements how much interest would be paid and how long it would take to repay the current balance if only the minimum is paid.Behavioral economists would expect this legislation to:

Accepted Answer

A)   substantially increase monthly payments,as consumers make better decisions when they have more information.
B)   overcome the status quo bias that keeps people paying the minimum.
C)   cause credit card companies to increase the minimum payments.
D)   have little effect,as anchoring would keep many people paying the minimum.E) B) and C)
F) All of the above

Exam 8: Behavioral Economics

Neoclassical and behavioral economics are generally complementary.

Correct Answer
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Correct Answer
verified

Carlos and Darla are 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,if Carlos is a typical player,behavioral economists would expect:

Correct Answer
verified

Behavioral economists believe that the human brain is generally:

Correct Answer
verified

People feel losses about 2.5 more intensely than they feel gains.

Correct Answer
verified

Because of framing effects,a worker will be happy with a 5 percent raise regardless of how much of a raise her fellow employees receive.

Correct Answer
verified

Neoclassical economics and behavioral economics both recognize that people make errors in their decision making.

Correct Answer
verified

According to behavioral economists,someone suffering from myopia is most likely to:

Correct Answer
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Linda committed a traffic violation that resulted in an accident.She learns first that the violation will result in a $500 fine;she then learns that she will have to pay another $500 for damage caused in the accident.According to prospect theory,

Correct Answer
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Hardwired heuristics make it easy to change behavior by simply presenting people with better information.

Correct Answer
verified

Josh will receive a salary of $300,000 next year.According to prospect theory:

Correct Answer
verified

The process by which people isolate purchases and fail to consider all consumption options simultaneously is known as:

Correct Answer
verified

Heuristics:

Correct Answer
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Which of the following is the best example of a precommitment used to overcome time inconsistency.

Correct Answer
verified

The results of running the dictator game experiments thousands of times have revealed to behavioral economists that:

Correct Answer
verified

According to behavioral economists,the human brain:

Correct Answer
verified

Which of the following is a significant difference in the behavior of the dictator/proposer between the dictator game and the ultimatum game?

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Which of the following would represent a systematic error?

Correct Answer
verified

Exam 8: Behavioral Economics

Neoclassical and behavioral economics are generally complementary.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Carlos and Darla are 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,if Carlos is a typical player,behavioral economists would expect:

Correct AnswerverifiedShow Answer

Behavioral economists believe that the human brain is generally:

Correct AnswerverifiedShow Answer

People feel losses about 2.5 more intensely than they feel gains.

Correct AnswerverifiedShow Answer

Because of framing effects,a worker will be happy with a 5 percent raise regardless of how much of a raise her fellow employees receive.

Correct AnswerverifiedShow Answer

Neoclassical economics and behavioral economics both recognize that people make errors in their decision making.

Correct AnswerverifiedShow Answer

According to behavioral economists,someone suffering from myopia is most likely to:

Correct AnswerverifiedShow Answer

Linda committed a traffic violation that resulted in an accident.She learns first that the violation will result in a $500 fine;she then learns that she will have to pay another $500 for damage caused in the accident.According to prospect theory,

Correct AnswerverifiedShow Answer

Hardwired heuristics make it easy to change behavior by simply presenting people with better information.

Correct AnswerverifiedShow Answer

Josh will receive a salary of $300,000 next year.According to prospect theory:

Correct AnswerverifiedShow Answer

The process by which people isolate purchases and fail to consider all consumption options simultaneously is known as:

Correct AnswerverifiedShow Answer

Heuristics:

Correct AnswerverifiedShow Answer

Which of the following is the best example of a precommitment used to overcome time inconsistency.

Correct AnswerverifiedShow Answer

The results of running the dictator game experiments thousands of times have revealed to behavioral economists that:

Correct AnswerverifiedShow Answer

According to behavioral economists,the human brain:

Correct AnswerverifiedShow Answer

Which of the following is a significant difference in the behavior of the dictator/proposer between the dictator game and the ultimatum game?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following would represent a systematic error?

Correct AnswerverifiedShow Answer

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