978-1259723223 Test Bank TBChap008 Part 2

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Test Bank: I

Topic: Prospect Theory

45. Last month Laura saw the value of her stock portfolio rise by $20,000. This month she

saw the value of her portfolio decline by $20,000. According to behavioral economics,

46. 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?

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

endowment effect.

Test Bank: I

Topic: Prospect Theory

47. According to prospect theory, firms are more likely to shrink packages than raise prices

because

48. According to the concept of framing effects,

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Topic: Prospect Theory

49. Suppose that Dairy Barn Foods produces a regular sour cream with 10 grams of fat per

serving and a “low fat” sour cream with only 5 grams of fat per serving (assume that this is

still considered a lot of fat to consume per serving). According to prospect theory, how

should Dairy Barn promote its “low fat” sour cream?

50. Josh will receive a salary of $300,000 next year. According to prospect theory,

51. Why do credit card companies typically require small minimum payment amounts on

their customers’ monthly credit card statements?

52. Anchoring

53. Because of “mental accounting,”

54. The process by which people isolate purchases and fail to consider all consumption

options simultaneously is known as

55. Alex was willing to pay $50 for the new World Cup soccer ball. When he received it

as a gift, he was willing to sell it, but for no less than $80. According to behavioral

economists,

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D. Alex’s behavior is irrational because his frame has changed.

56. According to the “endowment effect,“

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

the

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Difficult y : 02 Medium

Grada b l e : automa t ic

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

Topic: Prospect Theory

58. 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

59. Internationally, participation differences in organ donation programs are mostly

attributed to

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Grada b l e : automa t ic

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

Topic: Prospect Theory

60. 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,

61. 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?

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Blooms: Understand

Difficult y : 02 Medium

Grada b l e : automa t ic

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

Topic: Prospect Theory

62. Bucky and Satchel are offered identical jobs, each paying $80,000 per year. According

to behavioral economics,

63. Credit card companies require low minimum payments that impose significant interest

costs on consumers choosing to pay the minimum. Recent legislation has required credit

card companies to show on customer billing statements how much interest would be paid

and how long it would take to repay the current balance if only the minimum is paid.

Behavioral economists would expect this legislation to

64. 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,

65. According to behavioral economists, people’s preferences toward a particular outcome

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Blooms: Understand

Difficult y : 02 Medium

Grada b l e : automa t ic

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

Topic: Prospect Theory

66. For economists, “myopia” refers to

67. According to behavioral economists, someone suffering from myopia is most likely to

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Topic: Myopia and Time Inconsistency

68. Which of the following individuals least likely suffers from myopia?

69. “Time inconsistency” refers to the

70. Eric tries to eat more healthfully by eliminating cookies, donuts, and similar snacks

from his diet. Every day at work, however, coworkers bring in these treats and Eric

succumbs to temptation. Which of the following concepts would behavioral economists

use to explain Eric’s self-control problem?

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B. availability heuristic

C. self-serving bias

D. system 2 processes dominating decision making

71. According to behavioral economists, self-control problems

72. A company has designed an alarm clock that “runs and hides” after going off, forcing

the person to get up and find the alarm clock if he or she wants to shut off the alarm.

According to behavioral economists,

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Blooms: Understand

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Learning Objective: 08–04 Describe how time inconsistency and myopia cause people to

make suboptimal long-run decisions.

Test Bank: I

Topic: Myopia and Time Inconsistency

73. According to behavioral economists, precommitments

74. Salary smoothing, automatic payroll deductions, and early withdrawal penalties are all

examples of

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Topic: Myopia and Time Inconsistency

75. 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

76. Which of the following is the best example of a precommitment used to overcome time

inconsistency?

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Topic: Myopia and Time Inconsistency

77. Which of the following statements best reflects behavioral economists’ views on self-

interest versus the interests of others?

78. Fairness, according to behavioral economics,

79. According to behavioral economists, giving to charity

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A.

contradicts the view that people are narrowly self-interested.

B. appears unselfish but in fact is driven by self-interest.

C. results from an ability to accurately calculate benefits and costs.

D. is done solely to receive the utility from public recognition.

80. 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,

81. 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

82. Natural disasters often cause shortages of critical supplies. What outcomes would

neoclassical and behavioral economics typically predict from these events?

83. The dictator game

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AACSB: Knowledge Application

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Blooms: Remember

Di f f i c u l t y : 01 Easy

Grada b l e : a u t o mat i c

Learning Objective: 08–05 Define fairness and give examples of how it affects behavior in

the economy and in the dictator and ultimatum games.

Test Bank: I

Topic: Fairness and Self-Interest

84. 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, if Carlos is a typical player, behavioral economists would expect

85. 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?

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the economy and in the dictator and ultimatum games.

Test Bank: I

Topic: Fairness and Self-Interest

86. Carlos and Darla are representative individuals 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, about a third of the time

we would expect

A

. Carlos to keep all of the money for himself.

87. The results of running the dictator game experiments thousands of times have revealed

to behavioral economists that

88. Which of the following is a key difference between the dictator game and the

ultimatum game?