Question 1

Which of the following statements about behavioral economics is not true?

Accepted Answer

A)  Its insights help policymakers determine how to nudge people to make certain choices.
B)  It combines insights from economics, psychology, and neuroscience to better understand how people behave.
C)  It assumes that people are always rational, deliberate, and objective in their choices.
D)  It studies how people deal with choices involving "goods" as well as "bads."E) All of the above
F) A) and B)

Question 2

Carlos and Darla are 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, which is the least likely outcome?

Accepted Answer

A)  Carlos will keep all of the money for himself.
B)  Carlos will give all of the money to Darla.
C)  Carlos will split the money evenly with Darla.
D)  Carlos will split the money, keeping a little more than half for himself.E) B) and C)
F) A) and B)

Question 3

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

Question 4

Behavioral economics developed as a field of study that looks into how people make rational decisions based on self-interest.

Accepted Answer

A) True 
 B)False

Question 5

Automatic payroll deductions help people to fight their time inconsistency problem with regards to saving.

Accepted Answer

A) True 
 B)False

Question 6

One major tenet of behavioral economics is that the human brain is prone to commit errors in perception.

Accepted Answer

A) True 
 B)False

Question 7

Some behavioral economists explain the so-called endowment effect to be a consequence of people's tendency to

Accepted Answer

A)  feel gains more intensely than losses.
B)  feel losses more intensely than gains.
C)  focus mentally on a recently viewed number.
D)  feel strongly about fairness and generosity.E) C) and D)
F) B) and C)

Question 8

Cognitive biases are the result of

Accepted Answer

A)  heuristics used in the deliberative processes of the human brain.
B)  heuristics used in the intuitive processes of the human brain.
C)  deliberative processes of the human brain taking over the intuitive ones.
D)  the conflict between the older part and the newer part of the human brain.E) B) and C)
F) A) and D)

Question 9

The process by which people isolate purchases and fail to consider all consumption options simultaneously is known as

Accepted Answer

A)  framing.
B)  mental accounting.
C)  anchoring.
D)  the endowment effect.E) All of the above
F) None of the above

Question 10

What do neoclassical economics and behavioral economics believe about giving people options?

Accepted Answer

A)  Both believe that people make better decisions when they are given a greater set of options.
B)  Behavioral economics focuses on providing more options; neoclassical economics focuses on helping people make more rational decisions with the options available.
C)  Neoclassical economics focuses on providing more options; behavioral economics focuses on helping people make better decisions with the options available.
D)  Both believe that people are better off with fewer options, allowing them to spend more time calculating the benefits and costs of each available option.E) A) and B)
F) A) and C)

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

When someone tries to "multitask" despite mounting evidence that multitasking is actually inefficient, this illustrates

Accepted Answer

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

Question 13

Which of the following statements about human-brain activity is true?

Accepted Answer

A)  Unconscious intuition uses the newer parts of the brain in the front part of the head.
B)  Conscious deliberation uses the older parts of the brain in the front part of the head.
C)  Conscious deliberation uses the newer parts of the brain in the front part of the head.
D)  Unconscious intuition uses the older parts of the brain in the front part of the head.E) B) and C)
F) None of the above

Question 14

Precommitments must impose costs on people to be effective.

Accepted Answer

A) True 
 B)False

Question 15

Suppose Ryan and Rita were randomly shown the numbers 25 and 67, respectively, and then asked to estimate the price of an item about which they have relatively limited knowledge. According to findings from behavioral economics, we would expect

Accepted Answer

A)  Ryan to estimate a price higher than what Rita would estimate.
B)  Ryan to estimate a price lower than what Rita would estimate.
C)  Ryan to estimate a price about the same as what Rita would estimate.
D)  the randomly shown numbers to have no influence on their estimates.E) A) and B)
F) None of the above

Question 16

The endowment effect describes when people value a good more when they own it than when they don't.

Accepted Answer

A) True 
 B)False

Question 17

Al regularly pays the full amount of taxes due, even though he could easily hide some of his income and reduce his tax burden, with no risk of getting caught. According to behavioral economics,

Accepted Answer

A)  Al is not economically rational in his behavior.
B)  fairness and other moral considerations cause Al to act contrary to his pure self-interest.
C)  Al is more ethical than the majority of the population.
D)  heuristics are causing Al to act honorably, not a conscious or deliberative thought process.E) B) and C)
F) A) and B)

Question 18

Which of the following best explains the difference between neoclassical economics and behavioral economics?

Accepted Answer

A)  Neoclassical economics believes that government should play a minimal role in the economy, while behavioral economics calls for a more active role for government.
B)  Neoclassical economics assumes that people are rational in their decision making, while behavioral economics believes people make systematic errors.
C)  There is no real difference; behavioral economics just studies more intently how the rational decision-making process works.
D)  Neoclassical economics no longer offers valid explanations for economic outcomes, while behavioral economics does.E) B) and C)
F) A) and D)

Question 19

Which of the following statements is most accurate about human brain modularity?

Accepted Answer

A)  System 1 uses heuristics, while system 2 is more calculating; both are equally important in decision making.
B)  Both systems regularly use both heuristics and conscious calculations; both are equally important in decision making.
C)  System 1 uses heuristics, while system 2 is more calculating; system 2 regularly overcomes system 1's heuristics to make decisions.
D)  System 1 uses heuristics, while system 2 is more calculating; most decisions are made by system 1.E) A) and B)
F) B) and C)

Question 20

"Nudging" is the term used to refer to making people make better choices for themselves, using lessons about human behavior which economists have learned from

Accepted Answer

A)  neoclassical theory.
B)  purely competitive markets.
C)  marginal analysis.
D)  behavioral economics.E) B) and C)
F) A) and D)

Exam 8: Behavioral Economics

Precommitments must impose costs on people to be effective.

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What do neoclassical economics and behavioral economics believe about giving people options?

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The endowment effect describes when people value a good more when they own it than when they don't.

Correct AnswerverifiedShow Answer

Which of the following best explains the difference between neoclassical economics and behavioral economics?

Correct AnswerverifiedShow Answer

When someone tries to "multitask" despite mounting evidence that multitasking is actually inefficient, this illustrates

Correct AnswerverifiedShow Answer

Some behavioral economists explain the so-called endowment effect to be a consequence of people's tendency to

Correct AnswerverifiedShow Answer

One major tenet of behavioral economics is that the human brain is prone to commit errors in perception.

Correct AnswerverifiedShow Answer

Suppose Ryan and Rita were randomly shown the numbers 25 and 67, respectively, and then asked to estimate the price of an item about which they have relatively limited knowledge. According to findings from behavioral economics, we would expect

Correct AnswerverifiedShow Answer

Cognitive biases are the result of

Correct AnswerverifiedShow Answer

Carlos and Darla are 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, which is the least likely outcome?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Al regularly pays the full amount of taxes due, even though he could easily hide some of his income and reduce his tax burden, with no risk of getting caught. According to behavioral economics,

Correct AnswerverifiedShow Answer

The process by which people isolate purchases and fail to consider all consumption options simultaneously is known as

Correct AnswerverifiedShow Answer

Behavioral economics developed as a field of study that looks into how people make rational decisions based on self-interest.

Correct AnswerverifiedShow Answer

Which of the following statements about human-brain activity is true?

Correct AnswerverifiedShow Answer

Automatic payroll deductions help people to fight their time inconsistency problem with regards to saving.

Correct AnswerverifiedShow Answer

Which of the following statements is most accurate about human brain modularity?

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

"Nudging" is the term used to refer to making people make better choices for themselves, using lessons about human behavior which economists have learned from

Correct AnswerverifiedShow Answer

Which of the following statements about behavioral economics is not true?

Correct AnswerverifiedShow Answer

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