Question 1

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) B) and D)

Question 2

Use the status quo bias to explain why people are more likely to "super-size" their meal when asked than when not offered.

Accepted Answer

The tendency most people have when makin...

Question 3

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 economicsE) A) and B)
F) A) and C)

Question 4

Neoclassical economics assumes that people have the following characteristics, except

Accepted Answer

A)  they are stable and definite in their tastes and preferences.
B)  they are as good at assessing future options as they are in assessing current ones.
C)  they are driven by their pursuit of maximum satisfaction.
D)  they care deeply about fairness and are often generous.E) C) and D)
F) B) and D)

Question 5

Placement of goods in grocery and other retail stores is often done with the objective of encouraging impulse buying.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements about the so-called "hedonic treadmill" is not true?

Accepted Answer

A)  It is a consequence of the fact that our brains are wired to notice changes rather than states.
B)  An increase in consumption level will give a permanent increase in happiness.
C)  It is the reason why people across a wide spectrum of incomes are found to be equally happy.
D)  A one-shot increase in income will, in the long run, not affect people's sense of satisfaction.E) B) and C)
F) A) and B)

Question 7

How do framing effects influence perceptions of gains or losses? Give an example based on a wage increase of 7 percent for a worker and a wage increase of 11 percent for coworkers.

Accepted Answer

Framing effects occur when a change in c...

Question 8

Adam and Brittany both recently started new jobs. Both have determined that they should save 10 percent of their monthly income toward retirement. Adam's employer has no program established for payroll deduction, but he could easily set up automatic withdrawals to go into a retirement fund. Brittany's employer automatically directs 8 percent of the paycheck into a retirement fund, but the employee can change the percentage deducted. Behavioral economists would expect

Accepted Answer

A)  Adam to save more, as he would set up a 10 percent automatic withdrawal, while Brittany would stay at the default of 8 percent.
B)  Brittany to save more, as both would tend to stay at the defaults provided by their employers.
C)  them both to save 10 percent eventually, as both had predetermined that that was the optimal amount to save.
D)  Brittany to feel a greater sense of loss by seeing funds automatically withheld each month.E) A) and B)
F) B) and D)

Question 9

Which of the following facts is not a basis for prospect theory in behavioral economics?

Accepted Answer

A)  People evaluate gains and losses in relation to the status quo, not in absolute terms.
B)  People feel losses much more intensely than they feel gains.
C)  People experience diminishing marginal disutility for losses.
D)  People do not experience diminishing marginal utility for gains.E) B) and D)
F) B) and C)

Question 10

What are the four major complaints behavioral economists have with the neoclassical assumptions?

Accepted Answer

The four major complaints of the neoclas...

Question 11

The status quo effect suggests that giving people more options is always good for them.

Accepted Answer

A) True 
 B)False

Question 12

"Time inconsistency" refers to the

Accepted Answer

A)  tendency for policies with high short-run benefits to have high long-run costs.
B)  fallacy that what is true for the short run must be true for the long run.
C)  tendency to regularly misjudge in the present what you will do in the future.
D)  tendency to misjudge how long it will take to accomplish a future task.E) B) and D)
F) B) and C)

Question 13

Suppose Justine and Sarah are playing the dictator game. Justine is the dictator and has $100 to allocate. Based on repeated experiments of the dictator game, what amounts, on average, are Justine and Sarah most likely to receive?

Accepted Answer

A)  $100 for Justine and $0 for Sarah.
B)  $58 for Justine and $42 for Sarah.
C)  $50 for Justine and $50 for Sarah.
D)  $0 for Justine and $100 for Sarah.E) All of the above
F) A) and D)

Question 14

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

Question 15

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

Question 16

Which of the following does not illustrate the use of heuristics?

Accepted Answer

A)  baseball players locking their eyes on the ball in order to have a good chance of catching it
B)  scientists using the laws of physics and mathematics to predict where billiard balls will roll
C)  companies spending a lot on advertising in order to make their brands better known
D)  staying upright on a bicycle by steering in the direction of a fall when one begins to happenE) C) and D)
F) None of the above

Question 17

According to behavioral economics research, in which of the following cases would we expect a person to experience no net change in their utility?

Accepted Answer

A)  When the person gains $50 and loses $50.
B)  When the person gains $50 and loses $20.
C)  When the person gains $20 and loses $50.
D)  When the person gains $20 while everyone else gains $20.E) None of the above
F) B) and D)

Question 18

The availability heuristic refers to people purchasing what is most easily accessible.

Accepted Answer

A) True 
 B)False

Question 19

Behavioral economists believe that while people try to make rational decisions, they are frequently subject to systematic errors.

Accepted Answer

A) True 
 B)False

Question 20

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.E) C) and D)
F) B) and D)

Exam 8: Behavioral Economics

Behavioral economists believe that while people try to make rational decisions, they are frequently subject to systematic errors.

Correct Answer
verified

How do framing effects influence perceptions of gains or losses? Give an example based on a wage increase of 7 percent for a worker and a wage increase of 11 percent for coworkers.

Correct Answer
verified
Framing effects occur when a change in c...
View Answer

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?

Correct Answer
verified

According to behavioral economics research, in which of the following cases would we expect a person to experience no net change in their utility?

Correct Answer
verified

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

Correct Answer
verified

Suppose Justine and Sarah are playing the dictator game. Justine is the dictator and has $100 to allocate. Based on repeated experiments of the dictator game, what amounts, on average, are Justine and Sarah most likely to receive?

Correct Answer
verified

Which of the following facts is not a basis for prospect theory in behavioral economics?

Correct Answer
verified

The availability heuristic refers to people purchasing what is most easily accessible.

Correct Answer
verified

Use the status quo bias to explain why people are more likely to "super-size" their meal when asked than when not offered.

Correct Answer
verified
The tendency most people have when makin...
View Answer

What are the four major complaints behavioral economists have with the neoclassical assumptions?

Correct Answer
verified
The four major complaints of the neoclas...
View Answer

Placement of goods in grocery and other retail stores is often done with the objective of encouraging impulse buying.

Correct Answer
verified

The status quo effect suggests that giving people more options is always good for them.

Correct Answer
verified

Which of the following does not illustrate the use of heuristics?

Correct Answer
verified

Neoclassical economics assumes that people have the following characteristics, except

Correct Answer
verified

Which of the following statements about the so-called "hedonic treadmill" is not true?

Correct Answer
verified

Correct Answer
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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 Answer
verified

"Time inconsistency" refers to the

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

Correct Answer
verified

Exam 8: Behavioral Economics

Behavioral economists believe that while people try to make rational decisions, they are frequently subject to systematic errors.

Correct AnswerverifiedShow Answer

How do framing effects influence perceptions of gains or losses? Give an example based on a wage increase of 7 percent for a worker and a wage increase of 11 percent for coworkers.

Correct AnswerverifiedFraming effects occur when a change in c...View AnswerShow Answer

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?

Correct AnswerverifiedShow Answer

According to behavioral economics research, in which of the following cases would we expect a person to experience no net change in their utility?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose Justine and Sarah are playing the dictator game. Justine is the dictator and has $100 to allocate. Based on repeated experiments of the dictator game, what amounts, on average, are Justine and Sarah most likely to receive?

Correct AnswerverifiedShow Answer

Which of the following facts is not a basis for prospect theory in behavioral economics?

Correct AnswerverifiedShow Answer

The availability heuristic refers to people purchasing what is most easily accessible.

Correct AnswerverifiedShow Answer

Use the status quo bias to explain why people are more likely to "super-size" their meal when asked than when not offered.

Correct AnswerverifiedThe tendency most people have when makin...View AnswerShow Answer

What are the four major complaints behavioral economists have with the neoclassical assumptions?

Correct AnswerverifiedThe four major complaints of the neoclas...View AnswerShow Answer

Placement of goods in grocery and other retail stores is often done with the objective of encouraging impulse buying.

Correct AnswerverifiedShow Answer

The status quo effect suggests that giving people more options is always good for them.

Correct AnswerverifiedShow Answer

Which of the following does not illustrate the use of heuristics?

Correct AnswerverifiedShow Answer

Neoclassical economics assumes that people have the following characteristics, except

Correct AnswerverifiedShow Answer

Which of the following statements about the so-called "hedonic treadmill" is not true?

Correct AnswerverifiedShow Answer

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

"Time inconsistency" refers to the

Correct AnswerverifiedShow Answer

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

Correct Answer
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Framing effects occur when a change in c...
View Answer

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The tendency most people have when makin...
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The four major complaints of the neoclas...
View Answer

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