978-1259723223 Test Bank TBChap008 Part 1

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Chapter 08 Behavioral Economics Answer Key

Multiple Choice Questions

1. Which of the following best explains the difference between neoclassical economics and

behavioral economics?

2. Which of the following assumptions about human behavior is most likely to be accepted

by behavioral economists?

3. Behavioral economists believe that people

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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.

AACSB: Knowledge Application

Acces s i bi lity: Keyboard Navigation

Blooms: Remember

Di ff i c u l t y : 02 Medium

Gradable: automatic

Learning Objective: 08–01 Define behavioral economics and explain how it contrasts with

neoclassical economics.

Test Bank: I

To pic: Systematic Errors and the Origin of Behavioral Economics

4. Neoclassical economists generally believe which of the following about human

behavior?

5. Which of the following sets of personal characteristics best reflects what behavioral

economists assume about how people make decisions?

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written consent of McGraw-Hill Education.

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.

AACSB: Knowledge Application

Acces s i bi lity: Keyboard Navigation

Blooms: Remember

Di ff i c u l t y : 02 Medium

Gradable: automatic

Learning Objective: 08–01 Define behavioral economics and explain how it contrasts with

neoclassical economics.

Test Bank: I

To pic: Systematic Errors and the Origin of Behavioral Economics

6. 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 behavioral economist

would expect Susie to

7. 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 neoclassical economist

would expect Susie to

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written consent of McGraw-Hill Education.

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.

AACSB: Knowledge Application

Acces s i bi lity: Keyboard Navigation

Blooms: Remember

Di ff i c u l t y : 02 Medium

Gradable: automatic

Learning Objective: 08–01 Define behavioral economics and explain how it contrasts with

neoclassical economics.

Test Bank: I

To pic: Systematic Errors and the Origin of Behavioral Economics

8. In the financial crisis that precipitated the 2007-2009 recession, people systematically

overestimated their prospects for financial gain. Which branch of economics would most

likely have expected to predict this?

9. Which of the following individuals received a Nobel Prize in economics for his work in

behavioral economics?

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written consent of McGraw-Hill Education.

Blooms: Remember

Di ff i c u l t y : 02 Medium

Gradable: automatic

Learning Objective: 08–01 Define behavioral economics and explain how it contrasts with

neoclassical economics.

Test Bank: I

To pic: Systematic Errors and the Origin of Behavioral Economics

10. Which of the following statements best reflects how a behavioral economist views

individual decision making?

11. Because neoclassical economists assume that people are rational decision makers, they

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written consent of McGraw-Hill Education.

Test Bank: I

To pic: Systematic Errors and the Origin of Behavioral Economics

12. What do neoclassical economics and behavioral economics believe about giving

people options?

13. Neoclassical economics and behavioral economics

14. Which of the following supermarket strategies to increase sales would be most

consistent with a behavioral economics (versus neoclassical economics) approach?

15. Which of the following supermarket strategies to increase sales would be most

consistent with a neoclassical economics (versus behavioral economics) approach?

16. Why, according to behavioral economics, would supermarkets place gum, candy, and

other small convenience items near the cash registers?

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written consent of McGraw-Hill Education.

consumers by having smaller items at the checkout stands.

D.

Many of these are small items that people will buy on an impulse.

AACSB: Knowledge Application

Acces s i bi lity: Keyboard Navigation

Blooms: Remember

Di ff i c u l t y : 02 Medium

Gradable: a u t o m a t i c

Learning Objective: 08–01 Define behavioral economics and explain how it contrasts with

neoclassical economics.

Test Bank: I

To pic: Systematic Errors and the Origin of Behavioral Economics

17. According to behavioral economics, placement of goods in retail stores is often

designed to accomplish which of the following?

18. Which of the following would represent a systematic error?

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written consent of McGraw-Hill Education.

Di ff i c u l t y : 02 Medium

Gradable: automatic

Learning Objective: 08–01 Define behavioral economics and explain how it contrasts with

neoclassical economics.

Test Bank: I

To pic: Systematic Errors and the Origin of Behavioral Economics

19. Behavioral economists believe that the human brain is generally

20. According to behavioral economists, the human brain

21. According to behavioral economists, the human brain frequently employs heuristics

because

22. Heuristics

23. Those who believe that “there is no such thing as bad publicity” base this argument on

which of the following ideas from behavioral economics?

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written consent of McGraw-Hill Education.

AACSB: Knowledge Application

Acces s i bi lity: Keyboard Navigation

Blooms: Understand

Difficu l t y : 02 Medium

Gradable: automatic

Learning Objective: 08-02 Discuss the evidence for the brain being modular,

computationally restricted, reliant on heuristics, and prone to various forms of cognitive

error.

Test Bank: I

To pic: Our Efficient, Error-Prone Brains

24. According to behavioral economics, advertising works because it

25. Which of the following is not an implication of hardwired heuristics?

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written consent of McGraw-Hill Education.

Difficu l t y : 02 Medium

Gradable: automatic

Learning Objective: 08-02 Discuss the evidence for the brain being modular,

computationally restricted, reliant on heuristics, and prone to various forms of cognitive

error.

Test Bank: I

To pic: Our Efficient, Error-Prone Brains

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

27. Augi carefully plans out an early morning exercise routine to lose weight and get fit.

When it’s time to work out, however, Augi just “doesn’t feel up to it” and decides to sleep

in. Behavioral economics would say that Augi

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written consent of McGraw-Hill Education.

Difficu l t y : 02 Medium

Gradable: automatic

Learning Objective: 08-02 Discuss the evidence for the brain being modular,

computationally restricted, reliant on heuristics, and prone to various forms of cognitive

error.

Test Bank: I

To pic: Our Efficient, Error-Prone Brains

28. Behavioral economics recognizes that people use System 1 to make decisions more

often than they use System 2. Which of the following is an implication of that decision–

making process?

29. Which of the following is the best example of a System 2 decision and action?

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written consent of McGraw-Hill Education.

Difficu l t y : 02 Medium

Gradable: automatic

Learning Objective: 08-02 Discuss the evidence for the brain being modular,

computationally restricted, reliant on heuristics, and prone to various forms of cognitive

error.

Test Bank: I

To pic: Our Efficient, Error-Prone Brains

30. According to behavioral economics, cognitive biases

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

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written consent of McGraw-Hill Education.

To pic: Our Efficient, Error-Prone Brains

32. Dorothy likes to invest in gold as part of her overall financial investment portfolio, as

her gut tells her it will increase dramatically in value. Her favorite and generally only

source of investment advice is Wizard’s Gold Hour on the OZ cable channel. As a result

of this advice, Dorothy‘s portfolio mix is suboptimal, as it is too heavily weighted in gold.

Behavioral economists would say that Dorothy suffers from

33. 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?

34. In anonymous surveys, on average people rate themselves as “above average” with

regard to characteristics such as intelligence, perceptiveness, and driving ability.

According to behavioral economics, this contradictory result would most likely be caused

by the

35. John’s friend Rosika won a major lottery jackpot. Seeing this, John goes out and buys a

bunch of lottery tickets despite struggling financially and even though he knows that

millions don’t win and that the odds of winning are infinitesimal. John‘s decision to buy

the lottery tickets under these circumstances would best be explained by the

36. Dan was certain that his upcoming economics test would be so easy that he could wait

to study until the night before and still do well on the exam. When he cracked open his

book and notes the night before the exam, he realized he should’ve started studying

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earlier. According to behavioral economics, Dan’s error was caused primarily by

37. 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?

38. Whenever Josh goes to his favorite restaurant, he wants to buy tiramisu, his favorite

dessert. Despite the fact that he would enjoy the flavor of the tiramisu the same amount

every time, Josh only buys it when others are having dessert and never buys it if he

would be the only one having dessert. Behavioral economists would say that Josh’s

decision is affected by

39. 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?

40. When people convince themselves that they “knew all along” what was going to

happen, when in fact their predictions were incorrect, they suffer from

C. framing bias.

D.

hindsight bias.

41. Because gun violence is portrayed frequently on television and in movies, people

mistakenly assign too high of a probability that they will fall victim to gun violence and too

low of a probability to more likely but less publicized events. This phenomenon

illustrates

42. A central focus of prospect theory is

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written consent of McGraw-Hill Education.

Blooms: Understand

Difficu l t y : 02 Medium

Gradable: automatic

Learning Objective: 08–03 Relate how prospect theory helps to explain many consumer

behaviors, including framing effects, mental accounting, anchoring, loss aversion, and the

endowment effect.

Test Bank: I

To pic: Prospect Theory

43. In developing prospect theory, which of the following did behavioral economists not

discover about people’s reaction to goods and bads?

44. According to behavioral economics,