Question 1

People who engage in mental accounting are more likely to purchase overpriced warranties.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following assumptions about human behavior is most likely to be accepted by behavioral economists?

Accepted Answer

A)   People have preferences that are unstable and vary by context.
B)   People are almost entirely self-interested in their behavior.
C)   People plan out decisions well and possess lots of willpower.
D)   People eagerly and accurately calculate the benefits and costs of their decisions.E) B) and D)
F) B) and C)

Question 3

Behavioral economics assumes that people are

Accepted Answer

A)   eager and able to estimate the benefits and costs of their decisions.
B)   very much aware of their preferences and are consistent in their preferences.
C)   prone to falling prey to temptation because they lack sufficient willpower.
D)   always focusing on their self-interest and maximizing their own net benefits.E) A) and C)
F) B) and C)

Question 4

(Last Word)  "Nudges" refer to

Accepted Answer

A)   subtle changes in policies or practices that result in large behavioral changes.
B)   legal changes made without much publicity that require significant changes in behavior.
C)   coercion by governmental authorities.
D)   changes in endowments that significantly alter behavior.E) A) and B)
F) C) and D)

Question 5

System 1 is the part of the brain that carefully weighs the benefits and costs when making decisions.

Accepted Answer

A) True 
 B)False

Question 6

One major consequence of the planning fallacy 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)   major business projects may create bottlenecks in the organization because they are not completed as scheduled.
D)   some people may wrongly believe in their forecasting ability to predict future outcomes of risky investments.E) A) and D)
F) None of the above

Question 7

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.E) B) and C)
F) All of the above

Question 8

The tendency of hard-core Republicans to believe that all of the economic developments under the Obama presidency have been detrimental to the nation illustrates the

Accepted Answer

A)   confirmation bias.
B)   framing effect.
C)   overconfidence effect.
D)   availability heuristic.E) None of the above
F) A) and B)

Question 9

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

Accepted Answer

A)   distributing online coupons
B)   providing discounts for buying in bulk
C)   positioning frequently purchased items at the back of the store
D)   offering price matching with other storesE) B) and C)
F) A) and B)

Question 10

Precommitments must impose costs on people to be effective.

Accepted Answer

A) True 
 B)False

Question 11

Behavioral economists suggest that brand loyalty, which can be a source of monopoly power for the producer, may be explained by consumers' tendency to have the

Accepted Answer

A)   anchoring effect.
B)   mental accounting effect.
C)   status quo bias.
D)   confirmation bias.E) B) and D)
F) C) and D)

Question 12

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

Question 13

Neoclassical economics does not hold which of the following assumptions?

Accepted Answer

A)   People are fundamentally rational.
B)   People can make errors initially, but they learn quickly.
C)   People's errors are random and rare.
D)   People make regularly repeated mistakes.E) B) and C)
F) A) and D)

Question 14

According to behavioral economists, self-control problems generally result from poor information.

Accepted Answer

A) True 
 B)False

Question 15

People's tendency to attribute their successes to personal effort or a special personal trait, while blaming their failures on the faults of others or on something beyond their control is called

Accepted Answer

A)   confirmation bias.
B)   framing effect.
C)   hindsight bias.
D)   self-serving bias.E) A) and D)
F) A) and B)

Question 16

The tendency of people to misjudge, at the present time, what they will want to do or have at some future time is called

Accepted Answer

A)   time inconsistency.
B)   mental accounting.
C)   anchoring.
D)   framing.E) A) and D)
F) All of the above

Question 17

Thea 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) B) and C)
F) A) and B)

Question 18

(Last Word)  The BIT helped poor people in the Philippines increase their saving by offering "commitment" savings accounts that restricted withdrawals until certain dates or savings targets were reached. This is an example of

Accepted Answer

A)   a nudge.
B)   anchoring.
C)   mental accounting.
D)   endowment effects.E) A) and B)
F) None of the above

Question 19

According to behavioral economics, the difficulty among many people to sufficiently save for their retirement is partly explained by

Accepted Answer

A)   myopia.
B)   mental accounting.
C)   anchoring.
D)   framing.E) A) and B)
F) C) and D)

Question 20

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.E) All of the above
F) None of the above

Exam 8: Behavioral Economics

System 1 is the part of the brain that carefully weighs the benefits and costs when making decisions.

Correct AnswerverifiedShow Answer

Thea 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

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

Correct AnswerverifiedShow Answer

According to behavioral economists, self-control problems generally result from poor information.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Behavioral economists suggest that brand loyalty, which can be a source of monopoly power for the producer, may be explained by consumers' tendency to have the

Correct AnswerverifiedShow Answer

The tendency of people to misjudge, at the present time, what they will want to do or have at some future time is called

Correct AnswerverifiedShow Answer

Behavioral economics assumes that people are

Correct AnswerverifiedShow Answer

The tendency of hard-core Republicans to believe that all of the economic developments under the Obama presidency have been detrimental to the nation illustrates the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

People's tendency to attribute their successes to personal effort or a special personal trait, while blaming their failures on the faults of others or on something beyond their control is called

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

(Last Word) "Nudges" refer to

Correct AnswerverifiedShow Answer

According to behavioral economics, the difficulty among many people to sufficiently save for their retirement is partly explained by

Correct AnswerverifiedShow Answer

One major consequence of the planning fallacy is that

Correct AnswerverifiedShow Answer

Neoclassical economics does not hold which of the following assumptions?

Correct AnswerverifiedShow Answer

(Last Word) The BIT helped poor people in the Philippines increase their saving by offering "commitment" savings accounts that restricted withdrawals until certain dates or savings targets were reached. This is an example of

Correct AnswerverifiedShow Answer

Precommitments must impose costs on people to be effective.

Correct AnswerverifiedShow Answer

Which of the following assumptions about human behavior is most likely to be accepted by behavioral economists?

Correct AnswerverifiedShow Answer

People who engage in mental accounting are more likely to purchase overpriced warranties.

Correct AnswerverifiedShow Answer

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