Question 1

Framing effects in prospect theory indicate that a given result, such as "an investment return of 10 percent,"

Accepted Answer

A)   will be definitely viewed as a gain, because a loss would be a negative return.
B)   can be viewed as either a gain or a loss, depending on the context.
C)   will always increase the happiness of the investor.
D)   will change satisfaction to an equal but opposite degree as a negative 10 percent return.E) C) and D)
F) A) and C)

Question 2

According to behavioral economics, placement of goods in retail stores is often designed to accomplish which of the following?

Accepted Answer

A)   maximize impulse buying by consumers
B)   minimize shelving costs
C)   maximize convenience for customers
D)   maximize the amount of product the store can displayE) A) and D)
F) A) and C)

Question 3

Results of the ultimatum game

Accepted Answer

A)   affirm the metaphor of the invisible hand.
B)   contradict the metaphor of the invisible hand.
C)   demonstrate that markets are generally inefficient.
D)   suggest that governments are unnecessary.E) C) and D)
F) All of the above

Question 4

Neoclassical economic models make simplifying assumptions about people's rationality and preferences for the following reasons, except

Accepted Answer

A)   these assumptions make the models mathematically elegant.
B)   these assumptions allow the models to be conveniently solved mathematically.
C)   these assumptions allow the models to generate quite precise predictions of behavior.
D)   these assumptions allow the models to generate quite accurate predictions of behavior.E) A) and B)
F) A) and C)

Question 5

Sellers' sense of fairness in pricing can sometimes lead them to pricing decisions that do not maximize profits.

Accepted Answer

A) True 
 B)False

Question 6

When ordinarily neat people tend to litter in areas that are covered with graffiti, they illustrate the

Accepted Answer

A)   planning fallacy.
B)   framing effect.
C)   confirmation bias.
D)   availability heuristic.E) A) and D)
F) B) and D)

Question 7

The tendency of people to discount long-term values more than they do near-term values-making many people "future blind"- is known in behavioral economics as

Accepted Answer

A)   myopia.
B)   anchoring.
C)   framing effects.
D)   time Inconsistency.E) A) and D)
F) C) and D)

Question 8

One major consequence of the availability heuristic is that

Accepted Answer

A)   people may spend more resources to insure themselves against rare events, but leave themselves uninsured against more common events.
B)   someone could persist in pursuing a failed policy despite overwhelming evidence of the failure.
C)   bad decisions can be made because people will act without pausing to see whether their intuition is correct or not.
D)   some people may wrongly believe in their forecasting ability to predict future outcomes of risky investments.E) A) and B)
F) C) and D)

Question 9

Which of the following questions best illustrates the "framing effects" studied by behavioral economists?

Accepted Answer

A)   Which would you rather have after lunch today, an apple or an orange?
B)   How much would you rather receive: $100 while everyone else gets $110, or $80 like everyone else?
C)   Where would you rather invest your funds, in stocks or gold certificates?
D)   What would you rather do: go to college and postpone having a full-time job, or forgo college and get a full-time job now?E) None of the above
F) All of the above

Question 10

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.E) None of the above
F) C) and D)

Question 11

The tendency of people to overestimate the value of their possessions when, say, considering such value for insurance purposes is known in prospect theory as the

Accepted Answer

A)   anchoring effect.
B)   endowment effect.
C)   status quo bias.
D)   confirmation bias.E) All of the above
F) A) and B)

Question 12

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.E) B) and C)
F) None of the above

Question 13

Neoclassical economic analysis tends to disregard the following motivations in people's decisions and actions, except

Accepted Answer

A)   charity.
B)   selflessness.
C)   self-interest.
D)   focus on the common good.E) B) and D)
F) All of the above

Question 14

People feel losses about two and a half times more intensely than they feel gains.

Accepted Answer

A) True 
 B)False

Question 15

The many quirky decisions that people often make, which behavioral economics have found and analyzed, are so ingrained in the human psyche that there is nothing that policymakers can do about helping people make better choices for themselves.

Accepted Answer

A) True 
 B)False

Question 16

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) C) and D)
F) A) and B)

Question 17

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) All of the above

Question 18

The low-energy mental shortcuts, or heuristics, that the human brain commonly employs is one major reason for the systematic errors in decision making that people make, which is the focus of behavioral economics.

Accepted Answer

A) True 
 B)False

Question 19

According to behavioral economics, temptation to make harmful decisions can be overcome by presenting decision makers with better information and more options.

Accepted Answer

A) True 
 B)False

Question 20

That most people would prefer to buy meat that is 80 percent lean rather than meat that is 20 percent fat is an illustration of the

Accepted Answer

A)   anchoring effect.
B)   framing effect.
C)   confirmation bias.
D)   endowment effect.E) B) and D)
F) B) and C)

Exam 8: Behavioral Economics

People feel losses about two and a half times more intensely than they feel gains.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Because of "mental accounting,"

Correct AnswerverifiedShow Answer

Sellers' sense of fairness in pricing can sometimes lead them to pricing decisions that do not maximize profits.

Correct AnswerverifiedShow Answer

Framing effects in prospect theory indicate that a given result, such as "an investment return of 10 percent,"

Correct AnswerverifiedShow Answer

According to behavioral economics, placement of goods in retail stores is often designed to accomplish which of the following?

Correct AnswerverifiedShow Answer

Which of the following questions best illustrates the "framing effects" studied by behavioral economists?

Correct AnswerverifiedShow Answer

The tendency of people to overestimate the value of their possessions when, say, considering such value for insurance purposes is known in prospect theory as the

Correct AnswerverifiedShow Answer

The low-energy mental shortcuts, or heuristics, that the human brain commonly employs is one major reason for the systematic errors in decision making that people make, which is the focus of behavioral economics.

Correct AnswerverifiedShow Answer

Neoclassical economic analysis tends to disregard the following motivations in people's decisions and actions, except

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

That most people would prefer to buy meat that is 80 percent lean rather than meat that is 20 percent fat is an illustration of the

Correct AnswerverifiedShow Answer

Neoclassical economic models make simplifying assumptions about people's rationality and preferences for the following reasons, except

Correct AnswerverifiedShow Answer

According to behavioral economists, the human brain

Correct AnswerverifiedShow Answer

Results of the ultimatum game

Correct AnswerverifiedShow Answer

The tendency of people to discount long-term values more than they do near-term values-making many people "future blind"- is known in behavioral economics as

Correct AnswerverifiedShow Answer

The many quirky decisions that people often make, which behavioral economics have found and analyzed, are so ingrained in the human psyche that there is nothing that policymakers can do about helping people make better choices for themselves.

Correct AnswerverifiedShow Answer

According to behavioral economics, temptation to make harmful decisions can be overcome by presenting decision makers with better information and more options.

Correct AnswerverifiedShow Answer

One major consequence of the availability heuristic is that

Correct AnswerverifiedShow Answer

When ordinarily neat people tend to litter in areas that are covered with graffiti, they illustrate the

Correct AnswerverifiedShow Answer

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