Question 1

In the face of rising costs, some firms reduce the quality of the goods they produce rather than maintain quality and increase prices. How would behavioral economics explain this strategy?

Accepted Answer

A)  People have an aversion to losses, and consumers are more likely to feel the loss of a price increase than a quality reduction.
B)  Consumers are more tolerant of diminished quality because diminishing marginal utility causes people to get rid of goods sooner than in the past.
C)  Firms are myopic in their decision making, with little regard for future profitability.
D)  The availability heuristic will cause people to buy whatever is offered, regardless of the quality.E) A) and D)
F) A) and C)

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

What is the ultimatum game?

Accepted Answer

The ultimatum game has two players, the ...

Question 4

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

Question 5

High-end retailers spend a lot on architecture, displays, and packaging in order to take advantage of the

Accepted Answer

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

Question 6

The "anchoring" phenomenon observed by behavioral economists refers to the fact that people's estimates of the value of things are affected by

Accepted Answer

A)  recently considered information.
B)  their childhood memories.
C)  irrelevant data always.
D)  relevant information solely.E) B) and D)
F) A) and B)

Question 7

Behavioral economics hopes to eventually fully replace the neoclassical economic model.

Accepted Answer

A) True 
 B)False

Question 8

People's tendency to prefer the "default" option over other options is known in prospect theory as

Accepted Answer

A)  the anchoring effect.
B)  the mental accounting effect.
C)  status quo bias.
D)  confirmation bias.E) None of the above
F) B) and D)

Question 9

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) All of the above
F) A) and B)

Question 10

Which of the following statements best reflects how a behavioral economist views individual decision making?

Accepted Answer

A)  Alex makes wrong decisions sometimes, but usually it is only when he has been given bad information.
B)  Kara carefully calculates and weighs the expected benefits and costs of every option before making a decision.
C)  Alyssa may appear to care about others, but even her seemingly altruistic behaviors are really about furthering her own interests.
D)  Balin tries to make good, well-thought-out decisions, but his desire for utility in the present means that he often gives in to costly temptations.E) C) and D)
F) B) and D)

Question 11

Behavioral economics observes that people generally do not act according to their self-interest.

Accepted Answer

A) True 
 B)False

Question 12

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 13

Fatal automobile accidents occur much more frequently than do fatal airplane crashes, yet airplane crashes receive a disproportionate amount of media coverage. As a result, some people are overly fearful of flying in planes yet have no problem riding in cars. Which of the following cognitive biases best explains this disconnect between these people's fears and the statistical realities?

Accepted Answer

A)  overconfidence effect
B)  availability heuristic
C)  self-serving bias
D)  confirmation biasE) B) and D)
F) All of the above

Question 14

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 C)
F) All of the above

Question 15

One major consequence of the overconfidence effect is that

Accepted Answer

A)  some people cannot correct a personal trait that might be causing them to fail in many ventures.
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 based on irrelevant information.
D)  some people may wrongly believe in their forecasting ability to predict future outcomes of risky investments.E) A) and B)
F) A) and C)

Question 16

According to behavioral economics, the difficulty among many people to stick to a diet or an exercise plan is partly explained by

Accepted Answer

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

Question 17

Behavioral economics demonstrates that the threat of rejection makes people less likely to engage in transactions.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following sets of personal characteristics best reflects what behavioral economists assume about how people make decisions?

Accepted Answer

A)  People are irrational, are prone to systematic errors, have stable preferences, and care about fairness.
B)  People are rational, adjust for errors, have stable preferences, and easily resist temptation.
C)  People care deeply about fairness, eagerly and accurately calculate ways to help others, assess future and present options equally well, and resist temptations in their selflessness.
D)  People have preferences that depend on context, avoid and are bad at computation, often give in to temptation, and are often selfless in their behavior.E) A) and D)
F) None of the above

Question 19

Specialty shops can charge and get customers to pay higher prices for identical goods than they would pay in "big box" stores. Assuming that these differences are driven by store appearance rather than differences in services provided, which of the following best explains this phenomenon?

Accepted Answer

A)  availability heuristics
B)  framing effects
C)  confirmation biases
D)  self-serving biasesE) B) and D)
F) A) and C)

Question 20

Suppose Justine and Sarah are playing the ultimatum game. Justine is the proposer, has $200 to allocate, and Sarah can accept or reject the offer. Based on repeated experiments of the ultimatum game, what combination of payouts to Justine and Sarah is most likely to occur?

Accepted Answer

A)  $200 for Justine and $0 for Sarah
B)  $102 for Justine and $98 for Sarah
C)  $158 for Justine and $42 for Sarah
D)  $0 for Justine and $200 for SarahE) A) and D)
F) None of the above

Exam 8: Behavioral Economics

Specialty shops can charge and get customers to pay higher prices for identical goods than they would pay in "big box" stores. Assuming that these differences are driven by store appearance rather than differences in services provided, which of the following best explains this phenomenon?

Correct Answer
verified

In the face of rising costs, some firms reduce the quality of the goods they produce rather than maintain quality and increase prices. How would behavioral economics explain this strategy?

Correct Answer
verified

One major consequence of the overconfidence effect is that

Correct Answer
verified

Which of the following statements best reflects how a behavioral economist views individual decision making?

Correct Answer
verified

People's tendency to prefer the "default" option over other options is known in prospect theory as

Correct Answer
verified

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 Answer
verified

Behavioral economics observes that people generally do not act according to their self-interest.

Correct Answer
verified

Correct Answer
verified

Suppose Justine and Sarah are playing the ultimatum game. Justine is the proposer, has $200 to allocate, and Sarah can accept or reject the offer. Based on repeated experiments of the ultimatum game, what combination of payouts to Justine and Sarah is most likely to occur?

Correct Answer
verified

Because of "mental accounting,"

Correct Answer
verified

The "anchoring" phenomenon observed by behavioral economists refers to the fact that people's estimates of the value of things are affected by

Correct Answer
verified

According to behavioral economics, advertising works because it

Correct Answer
verified

High-end retailers spend a lot on architecture, displays, and packaging in order to take advantage of the

Correct Answer
verified

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

Correct Answer
verified

What is the ultimatum game?

Correct Answer
verified
The ultimatum game has two players, the ...
View Answer

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

Correct Answer
verified

Which of the following sets of personal characteristics best reflects what behavioral economists assume about how people make decisions?

Correct Answer
verified

Behavioral economics hopes to eventually fully replace the neoclassical economic model.

Correct Answer
verified

Behavioral economics demonstrates that the threat of rejection makes people less likely to engage in transactions.

Correct Answer
verified

According to behavioral economics, the difficulty among many people to stick to a diet or an exercise plan is partly explained by

Correct Answer
verified

Exam 8: Behavioral Economics

Specialty shops can charge and get customers to pay higher prices for identical goods than they would pay in "big box" stores. Assuming that these differences are driven by store appearance rather than differences in services provided, which of the following best explains this phenomenon?

Correct AnswerverifiedShow Answer

In the face of rising costs, some firms reduce the quality of the goods they produce rather than maintain quality and increase prices. How would behavioral economics explain this strategy?

Correct AnswerverifiedShow Answer

One major consequence of the overconfidence effect is that

Correct AnswerverifiedShow Answer

Which of the following statements best reflects how a behavioral economist views individual decision making?

Correct AnswerverifiedShow Answer

People's tendency to prefer the "default" option over other options is known in prospect theory 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

Behavioral economics observes that people generally do not act according to their self-interest.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose Justine and Sarah are playing the ultimatum game. Justine is the proposer, has $200 to allocate, and Sarah can accept or reject the offer. Based on repeated experiments of the ultimatum game, what combination of payouts to Justine and Sarah is most likely to occur?

Correct AnswerverifiedShow Answer

Because of "mental accounting,"

Correct AnswerverifiedShow Answer

The "anchoring" phenomenon observed by behavioral economists refers to the fact that people's estimates of the value of things are affected by

Correct AnswerverifiedShow Answer

According to behavioral economics, advertising works because it

Correct AnswerverifiedShow Answer

High-end retailers spend a lot on architecture, displays, and packaging in order to take advantage of the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

What is the ultimatum game?

Correct AnswerverifiedThe ultimatum game has two players, the ...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following sets of personal characteristics best reflects what behavioral economists assume about how people make decisions?

Correct AnswerverifiedShow Answer

Behavioral economics hopes to eventually fully replace the neoclassical economic model.

Correct AnswerverifiedShow Answer

Behavioral economics demonstrates that the threat of rejection makes people less likely to engage in transactions.

Correct AnswerverifiedShow Answer

According to behavioral economics, the difficulty among many people to stick to a diet or an exercise plan is partly explained by

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The ultimatum game has two players, the ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified