Question 1

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

Question 2

The presence of framing effects influences how sellers present their products to consumers.

Accepted Answer

A) True 
 B)False

Question 3

According to prospect theory,what strategy will firms typically employ with regard to pricing and packaging of their goods,when faced with rising production costs?

Accepted Answer

A)   Firms will increase both package sizes and prices but will increase prices more to communicate to consumers that the product has greater value.
B)   Firms will reduce package sizes but keep prices the same,thus increasing the per unit price of the good.
C)   Firms will keep package sizes the same but lower prices and attempt to cover the higher costs with greater revenue.
D)   According to prospect theory,the choice of strategy doesn't matter,as consumers are generally able to recognize price increases regardless of what form they take.E) None of the above
F) B) and C)

Question 4

(Last Word) Participation in company retirement savings programs has increased dramatically because:

Accepted Answer

A)   participation was required by the company.
B)   enrollment in these programs was set as the default option and workers had to request to be unenrolled.
C)   not being enrolled in these programs was set as the default options,and people's aversion to being told what to do prompted many to request enrollment.
D)   endowment effects encourage greater saving.E) B) and C)
F) C) and D)

Question 5

Heuristics generally help people to make decisions faster,but also to make more errors.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is a key difference between the dictator game and the ultimatum game?

Accepted Answer

A)   The dictator game is played with real money;the ultimatum game is played with hypothetical money.
B)   In the dictator game,one person has total control over the split;in the ultimatum game,both players have to agree to the split.
C)   Results of dictator game experiments reveal that people don't care about fairness;results of the ultimatum game indicate that they do care.
D)   There is no difference between them;they are simply different names for the same game.E) B) and C)
F) A) and D)

Question 7

Dictators/proposers tend act more self-interested when playing the dictator game versus the ultimatum game.

Accepted Answer

A) True 
 B)False

Question 8

Susie knows that too many sugary treats,while delicious when eaten,have long-term adverse effects on weight and health.Based on this information,a neoclassic economist would expect Susie to:

Accepted Answer

A)   carefully weigh the short-term benefits against the long-term costs and make a rational decision about how many treats to eat.
B)   eat more sugary treats than is optimal,as she likely gives more weight to present events and outcomes than to ones in the future.
C)   give away most of her sugary treats in an effort to resist temptation.
D)   determine her fair share of the sugary treats available,and only eat those.E) A) and B)
F) All of the above

Question 9

The ultimatum game reveals that the threat of rejection:

Accepted Answer

A)   weakens the functioning of the invisible hand.
B)   reduces cooperation.
C)   increases selfish behavior.
D)   helps align private interests with social interests.E) A) and D)
F) A) and C)

Question 10

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 B)
F) C) and D)

Question 11

(Consider This) For people that use commitment contracts to motivate achievement of a goal,people have the choice of their penalty money (from failing to reach the goal) to go to either charities they like or charities they hate (anti-charities) .From a behavioral economics perspective:

Accepted Answer

A)   designating an anti-charity should be more effective because loss aversion will provide additional motivation.
B)   designating a charity (versus an anti-charity) should be more effective because it avoids all potential for loss.
C)   it shouldn't matter whether one designates a charity or an anti-charity.
D)   self-interest biases generally keep people from choosing the anti-charity.E) A) and D)
F) A) and C)

Question 12

(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 C)
F) A) and D)

Question 13

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 stores.E) C) and D)
F) A) and C)

Question 14

Recognition heuristics help advertisers gain customers.

Accepted Answer

A) True 
 B)False

Question 15

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 16

According to prospect theory,people tend to favor default options.This is known as the:

Accepted Answer

A)   self-serving bias.
B)   availability heuristic.
C)   status quo bias.
D)   framing bias.E) B) and C)
F) A) and B)

Question 17

Balin purchases fair trade cocoa out of concern for workers' rights and environmental sustainability.He could purchase cocoa of equal quality at a lower price.Behavioral economists would consider Balin's purchase:

Accepted Answer

A)   unusual in that it demonstrates concern for others.
B)   purely self-interested but motivated by something other than his financial well-being.
C)   as evidence that Balin is not acting purely in his self-interest.
D)   a bad decision because it ignores important information that could improve Balin's well-being.E) C) and D)
F) B) and C)

Question 18

When people convince themselves that they "knew all along" what was going to happen,when in fact their predictions were incorrect,they suffer from:

Accepted Answer

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

Question 19

Which of the following cognitive biases refers to people's tendency to attribute their successes to personal ability and effort,and failures to forces outside their control?

Accepted Answer

A)   Overconfidence effect.
B)   Confirmation bias.
C)   Self-serving bias.
D)   Hindsight bias.E) A) and C)
F) A) and B)

Question 20

Behavioral economists avoid dealing with fairness concerns because the concept is too subjective.

Accepted Answer

A) True 
 B)False

Exam 8: Behavioral Economics

(Last Word) "Nudges" refer to:

Correct AnswerverifiedShow Answer

Balin purchases fair trade cocoa out of concern for workers' rights and environmental sustainability.He could purchase cocoa of equal quality at a lower price.Behavioral economists would consider Balin's purchase:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to prospect theory,what strategy will firms typically employ with regard to pricing and packaging of their goods,when faced with rising production costs?

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

Dictators/proposers tend act more self-interested when playing the dictator game versus the ultimatum game.

Correct AnswerverifiedShow Answer

Behavioral economists believe that people:

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

The ultimatum game reveals that the threat of rejection:

Correct AnswerverifiedShow Answer

Susie knows that too many sugary treats,while delicious when eaten,have long-term adverse effects on weight and health.Based on this information,a neoclassic economist would expect Susie to:

Correct AnswerverifiedShow Answer

Which of the following is a key difference between the dictator game and the ultimatum game?

Correct AnswerverifiedShow Answer

(Consider This) For people that use commitment contracts to motivate achievement of a goal,people have the choice of their penalty money (from failing to reach the goal) to go to either charities they like or charities they hate (anti-charities) .From a behavioral economics perspective:

Correct AnswerverifiedShow Answer

Behavioral economists avoid dealing with fairness concerns because the concept is too subjective.

Correct AnswerverifiedShow Answer

Recognition heuristics help advertisers gain customers.

Correct AnswerverifiedShow Answer

Which of the following cognitive biases refers to people's tendency to attribute their successes to personal ability and effort,and failures to forces outside their control?

Correct AnswerverifiedShow Answer

According to prospect theory,people tend to favor default options.This is known as the:

Correct AnswerverifiedShow Answer

Heuristics generally help people to make decisions faster,but also to make more errors.

Correct AnswerverifiedShow Answer

The presence of framing effects influences how sellers present their products to consumers.

Correct AnswerverifiedShow Answer

(Last Word) Participation in company retirement savings programs has increased dramatically because:

Correct AnswerverifiedShow Answer

When people convince themselves that they "knew all along" what was going to happen,when in fact their predictions were incorrect,they suffer from:

Correct AnswerverifiedShow Answer

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