Question 1

Myopia means

Accepted Answer

A)   far-sightedness.
B)   a tendency to focus on the future.
C)   a higher concern for the present.
D)   price sensitivity.E) A) and B)
F) None of the above

Question 2

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) None of the above
F) A) and C)

Question 3

Behavioral economists suggest that the reason why many consumers tend to stick to one brand in things that they often buy, like food items, is people's tendency to have the

Accepted Answer

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

Question 4

The threat of rejection is part of what makes the invisible hand a valid metaphor for how the market system works.

Accepted Answer

A) True 
 B)False

Question 5

Heuristics generally help people make fewer errors in their decisions.

Accepted Answer

A) True 
 B)False

Question 6

(Consider This)  The hedonic treadmill refers to a phenomenon where

Accepted Answer

A)   people can't improve their economic well-being because prices increase as fast as wages.
B)   people can't get out of debt because credit card companies use anchoring to get consumers to carry large balances on their accounts.
C)   increasing our level of consumption doesn't make us any happier in the long term.
D)   feelings of loss offset our feelings of gain, leaving us no happier in the long term.E) B) and C)
F) All of the above

Question 7

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) A) and C)

Question 8

Neoclassical economics and behavioral economics are similar in the assumption that people are capable of making accurate, sometimes complex, calculations with respect to their utility-maximizing decisions.

Accepted Answer

A) True 
 B)False

Question 9

Scientists studying human behavior have found that people tend to

Accepted Answer

A)   always make rational decisions.
B)   make systematic errors in their decisions.
C)   make only random errors in their decisions.
D)   always make decisions that are not rational.E) C) and D)
F) B) and D)

Question 10

What are the two categories of cognitive biases identified by behavioral economists?

Accepted Answer

A)   unevolved capacity for solving modern problems and faulty heuristics
B)   bad information and lack of impulse control
C)   lack of intellect and mental disorders
D)   inability to reason and inability to delay gratificationE) A) and B)
F) None of the above

Question 11

One major consequence of the framing effect is that

Accepted Answer

A)   people may spend more 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)   decision makers may make faulty decisions if they are lulled by the environment in which they are making their decisions.E) All of the above
F) None of the above

Question 12

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 13

Sellers' sense of fairness is always consistent with the notion of rational self-interest of neoclassical economics.

Accepted Answer

A) True 
 B)False

Question 14

Behavioral economic theories are developed based on the following, except

Accepted Answer

A)   assuming that people always make rational decisions and choices.
B)   observing people's actual behavior, including irrational behavior.
C)   trying to explain people's tendency to make systematic errors in certain situations.
D)   dropping the neoclassical assumption that people are fundamentally rational.E) All of the above
F) B) and D)

Question 15

Credit card companies put a low "minimum required payment" on people's bills in the hope that people will send in low payments, thereby allowing the card companies to earn more interest. The companies are trying to exploit the

Accepted Answer

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

Question 16

Neoclassical theory suggests that to the extent impulse buying occurs, it is infrequent and does not affect the ability of economic models to predict behavior.

Accepted Answer

A) True 
 B)False

Question 17

Some people's tendency to believe that they are better than average at making judgments or opinions is called the

Accepted Answer

A)   confirmation bias.
B)   framing effect.
C)   overconfidence effect.
D)   self-serving bias.E) All of the above
F) B) and D)

Question 18

Behavioral economists believe that people

Accepted Answer

A)   assess current and future options equally well.
B)   do not care about fairness, especially if it impairs their ability to get what they want.
C)   make errors in decision making because of problems such as bad information, but such errors are random and generally not repeated by the same individual.
D)   often succumb to temptation.E) A) and D)
F) None of the above

Question 19

According to behavioral economics, advertising works because it

Accepted Answer

A)   provides useful information that improves consumers' ability to make decisions.
B)   exploits the self-serving bias.
C)   exploits the recognition heuristic.
D)   quickly communicates price changes that exploit the law of demand.E) A) and B)
F) None of the above

Question 20

The tendency of people to believe that something they own is more valuable than an identical item that they do not own is known in prospect theory as the

Accepted Answer

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

Exam 8: Behavioral Economics

Credit card companies put a low "minimum required payment" on people's bills in the hope that people will send in low payments, thereby allowing the card companies to earn more interest. The companies are trying to exploit the

Correct AnswerverifiedShow Answer

Behavioral economists suggest that the reason why many consumers tend to stick to one brand in things that they often buy, like food items, is people's tendency to have the

Correct AnswerverifiedShow Answer

According to behavioral economics, advertising works because it

Correct AnswerverifiedShow Answer

Neoclassical economics and behavioral economics are similar in the assumption that people are capable of making accurate, sometimes complex, calculations with respect to their utility-maximizing decisions.

Correct AnswerverifiedShow Answer

The tendency of people to believe that something they own is more valuable than an identical item that they do not own is known in prospect theory as the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The threat of rejection is part of what makes the invisible hand a valid metaphor for how the market system works.

Correct AnswerverifiedShow Answer

Heuristics generally help people make fewer errors in their decisions.

Correct AnswerverifiedShow Answer

What are the two categories of cognitive biases identified by behavioral economists?

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Heuristics

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

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Some people's tendency to believe that they are better than average at making judgments or opinions is called the

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Myopia means

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Sellers' sense of fairness is always consistent with the notion of rational self-interest of neoclassical economics.

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Neoclassical theory suggests that to the extent impulse buying occurs, it is infrequent and does not affect the ability of economic models to predict behavior.

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Behavioral economic theories are developed based on the following, except

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Behavioral economists believe that people

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(Consider This) The hedonic treadmill refers to a phenomenon where

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One major consequence of the framing effect is that

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Scientists studying human behavior have found that people tend to

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