Question 1

One important consequence of the self-serving bias 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 without pausing to see whether their intuition is correct or not.
D)  some people may wrongly believe in their forecasting ability to predict future outcomes of risky investments.E) None of the above
F) A) and B)

Question 2

Junior collects baseball cards.He owns one Felix Hernandez card that sells in most shops for $15.He is interested in buying a different Felix card that also sells for $15.According to behavioral economics,

Accepted Answer

A)  Junior should value the two cards equally and be willing to trade one for the other.
B)  the availability heuristic will cause Junior to value more highly the card he doesn't have.
C)  the endowment effect would suggest that Junior would not be willing to trade the card he has for the card he doesn't have.
D)  prospect theory says he will buy the second card, as both have the potential to appreciate in value.E) B) and C)
F) None of the above

Question 3

The following are major observations made by behavioral economists regarding human behavior, except

Accepted Answer

A)  workers tend to spend and consume too much in the present, thus not saving enough for retirement.
B)  people tend to stick with the default option when faced with various alternatives.
C)  people behave in ways that seem irrational at first glance, but are really rational.
D)  people often intentionally act in irrational ways.E) A) and D)
F) A) and C)

Question 4

According to behavioral economics,

Accepted Answer

A)  gains are felt more intensely than losses.
B)  each successive unit of loss is equal in its marginal disutility.
C)  each successive unit of loss hurts, but less than the previous unit.
D)  each successive unit of loss hurts, and more than the previous unit.E) None of the above
F) A) and C)

Question 5

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 D)
F) C) and D)

Question 6

The dictator game

Accepted Answer

A)  reveals nothing important about economic behavior because the money used is hypothetical.
B)  demonstrates that people care about fairness and will sacrifice financially for others.
C)  demonstrates nothing definitive about fairness, as concerns about the other player's perceptions will influence the dictator's choices.
D)  regularly results in the dictator taking all of the money for him/herself, as economic theory would predict.E) B) and C)
F) A) and B)

Question 7

Selfishness is

Accepted Answer

A)  exhibited more strongly in the ultimatum game than in the dictator game.
B)  exhibited more strongly in the dictator game than in the ultimatum game.
C)  exhibited equally strongly in both the ultimatum and dictator games.
D)  rarely exhibited in either the ultimatum or dictator games.E) A) and C)
F) B) and 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 D)
F) B) and C)

Question 9

When ordinarily neat people tend to litter in areas that are covered with graffiti, they illustrate the

Accepted Answer

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

Question 10

Heuristics help people make faster, error-free decisions.

Accepted Answer

A) True 
 B)False

Question 11

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

Question 12

Framing effects in prospect theory indicate that a given result, such as "an investment return of 10 percent,"

Accepted Answer

A)  will be definitely viewed as a gain, because a loss would be a negative return.
B)  can be viewed as either a gain or a loss, depending on the context.
C)  will always increase the happiness of the investor.
D)  will change satisfaction to an equal but opposite degree as a negative 10 percent return.E) None of the above
F) B) and C)

Question 13

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) None of the above

Question 14

When Lucian starts his new job, he is given the option to contribute to his retirement fund, which the company will match up to 5 percent of his base salary.Lucian knows he can afford to contribute to his retirement fund; he only needs to file a form to activate the contributions and matching.According to prospect theory, if Lucian is typical in his behavior, we would expect him to

Accepted Answer

A)  take full advantage of the matching contribution because that would maximize his financial well-being.
B)  not file the form to start the contribution and match.
C)  negotiate with his boss for a higher match in order to increase his returns.
D)  only start contributions if the retirement portfolio is heavily weighted in high-return assets.E) B) and D)
F) None of the above

Question 15

Hardwired heuristics make it easy to change behavior by simply presenting people with better information.

Accepted Answer

A) True 
 B)False

Question 16

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

Question 17

Key features of so-called nudges include the following, except that

Accepted Answer

A)  they are subtle.
B)  they induce changes in behavior without bullying or coercion.
C)  they involve significant monetary incentives.
D)  they can be viewed by some as manipulation.E) A) and B)
F) B) and C)

Question 18

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 19

According to behavioral economics, the difficulty among many people to sufficiently save for their retirement is partly explained by

Accepted Answer

A)  myopia.
B)  mental accounting.
C)  anchoring.
D)  framing.E) None of the above
F) A) and B)

Question 20

One major point of disagreement between neoclassical economics and behavioral economics is the assumption of rationality.

Accepted Answer

A) True 
 B)False

Exam 8: Behavioral Economics

According to behavioral economics, the difficulty among many people to sufficiently save for their retirement is partly explained by

Correct Answer
verified

One important consequence of the self-serving bias is that

Correct Answer
verified

One major point of disagreement between neoclassical economics and behavioral economics is the assumption of rationality.

Correct Answer
verified

Framing effects in prospect theory indicate that a given result, such as "an investment return of 10 percent,"

Correct Answer
verified

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

Correct Answer
verified

Key features of so-called nudges include the following, except that

Correct Answer
verified

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

Correct Answer
verified

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 Answer
verified

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

Correct Answer
verified

Heuristics help people make faster, error-free decisions.

Correct Answer
verified

The dictator game

Correct Answer
verified

Junior collects baseball cards.He owns one Felix Hernandez card that sells in most shops for $15.He is interested in buying a different Felix card that also sells for $15.According to behavioral economics,

Correct Answer
verified

Cognitive biases are the result of

Correct Answer
verified

When ordinarily neat people tend to litter in areas that are covered with graffiti, they illustrate the

Correct Answer
verified

Hardwired heuristics make it easy to change behavior by simply presenting people with better information.

Correct Answer
verified

Correct Answer
verified

According to behavioral economics,

Correct Answer
verified

The following are major observations made by behavioral economists regarding human behavior, except

Correct Answer
verified

Selfishness is

Correct Answer
verified

Correct Answer
verified

Exam 8: Behavioral Economics

According to behavioral economics, the difficulty among many people to sufficiently save for their retirement is partly explained by

Correct AnswerverifiedShow Answer

One important consequence of the self-serving bias is that

Correct AnswerverifiedShow Answer

One major point of disagreement between neoclassical economics and behavioral economics is the assumption of rationality.

Correct AnswerverifiedShow Answer

Framing effects in prospect theory indicate that a given result, such as "an investment return of 10 percent,"

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Key features of so-called nudges include the following, except that

Correct AnswerverifiedShow Answer

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

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

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

Correct AnswerverifiedShow Answer

Heuristics help people make faster, error-free decisions.

Correct AnswerverifiedShow Answer

The dictator game

Correct AnswerverifiedShow Answer

Junior collects baseball cards.He owns one Felix Hernandez card that sells in most shops for $15.He is interested in buying a different Felix card that also sells for $15.According to behavioral economics,

Correct AnswerverifiedShow Answer

Cognitive biases are the result of

Correct AnswerverifiedShow Answer

When ordinarily neat people tend to litter in areas that are covered with graffiti, they illustrate the

Correct AnswerverifiedShow Answer

Hardwired heuristics make it easy to change behavior by simply presenting people with better information.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

According to behavioral economics,

Correct AnswerverifiedShow Answer

The following are major observations made by behavioral economists regarding human behavior, except

Correct AnswerverifiedShow Answer

Selfishness is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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