978-1259723223 Test Bank TBChap008 Part 3

89. Which of the following is a significant difference in the outcomes between the dictator

game and the ultimatum game?

90. Which of the following is a significant difference in the behavior of the

dictator/proposer between the dictator game and the ultimatum game?

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C. There is no systematic difference in the generosity of the dictator/proposer between the

two games.

D. Dictators/proposers demonstrate more emotion when playing the dictator game.

91. Edgar and Felicity are players in an ultimatum game for $100, where Felicity is the

proposer and Edgar is the responder. Suppose that Felicity proposes that she receive $95,

while Edgar receives only $5. How would behavioral economists expect Edgar to

respond?

92. When the ultimatum game is played for larger rather than smaller amounts of money,

behavioral economists have found that when the proposed splits are very uneven

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D. responders will accept offers at a higher rate but will exact greater emotional penalties

on the proposer.

93. Suppose Gina and Henry play two rounds of the ultimatum game. In the first round they

play for $10; in the second round they play for $1,000. In the first round Gina suggests an

80/20 split ($8 to Gina, $2 to Henry), but Henry quickly rejects the offer as unfair. If in

the second round Gina offers the same split ($800 to Gina, $200 to Henry), research by

behavioral economists suggests that Henry will

94. Suppose Gina and Henry play two rounds of the ultimatum game. In the first round they

play for $10; in the second round they play for $1,000. In the first round Gina suggests an

80/20 split ($8 to Gina, $2 to Henry), but Henry quickly rejects the offer as unfair.

Assuming Gina is interested in gaining financially from the experience and that she

understands behavioral economics, we would expect her to

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Henry will accept the split because $100 is better than nothing.

C.

offer a more equal split ($700/$300) to increase the probability that Henry will accept

the offer.

D. offer Henry more than half of the pot to ensure acceptance of the offer.

95. Results of the ultimatum game

96. Selfishness is

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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

To pic: Fairness and Self-Interest

97. The ultimatum game reveals that the threat of rejection

98. Which of the following best describes the relationship between market transactions and

the ultimatum and dictator games?

99. The threat of rejection in market transactions

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A. leads to better products for consumers.

B. leads to lower prices for consumers.

C. leads to greater cooperation between buyers and sellers.

D.

does all of these.

100. The threat of rejection in market transactions

101. (Consider This) According to the piece “Wannamaker’s Lament,”

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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

102. (Consider This) According to the piece “Wannamaker’s Lament,” how have firms

responded to the evidence that most advertising campaigns have little impact on sales?

103. (Consider This) Kara was earning $40,000 per year. When her income rose to

$60,000 per year, she enjoyed the higher level of consumption for a while, but eventually

she was no more happy than when she earned $40,000 (assume prices didn‘t change over

this time period). Economist Richard Easterlin described this as

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endowment effect.

Test Bank: I

To pic: Prospect Theory

104. (Consider This) The hedonic treadmill refers to a phenomenon where

105. (Consider This) In sunny parts of the country, solar panels generate net financial

benefits in just a few years, despite having high installation costs. Despite their long-run

profitability, the high upfront costs discourage many from installing solar panels. From a

behavioral economics perspective, this is the result of

106. (Consider This) Solar City helped homeowners overcome their myopia by

107. (Last Word) The United Kingdom’s Behavioral Insights Team substantially increased

the amount of income tax collected each year by

108. (Last Word) “Nudges” refer to

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Blooms: Understand

Difficu l t y : 02 Medium

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

109. (Last Word) The BIT helped poor people in the Philippines increase their saving by

offering “commitment” savings accounts that restricted withdrawals until certain dates or

savings targets were reached. This is an example of

True / False Questions

110. Both neoclassical and behavioral economics believe that people are mostly rational in

both their decision making and their actions.

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111. Behavioral economists believe that while people try to make rational decisions, they

are frequently subject to systematic errors.

112. Behavioral economics recognizes that people frequently make errors, but these errors

generally cancel out in such a way that neoclassical models are sufficient for predicting

113. Neoclassical and behavioral economics are generally viewed as complementary.

114. A key difference between neoclassical economics and behavioral economics is that in

behavioral economics, context affects preferences.

115. Behavioral economics observes that people generally do not act according to their

self-interest.

116. Neoclassical economics and behavioral economics both recognize that people make

errors in their decision making.

117. According to behavioral economics, temptation to make harmful decisions can be

overcome by presenting decision makers with better information and more options.

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AACSB: Knowledge Application

Acces s i bi lity: Keyboard Navigation

Blooms: Remember

Di ff i c u l t y : 02 Medium

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

118. Neoclassical theory suggests that to the extent impulse buying occurs, it is infrequent

and does not affect the ability of economic models to predict behavior.

119. Placement of goods in grocery and other retail stores is often done with the objective

of encouraging impulse buying.

120. Heuristics generally help people make fewer errors in their decisions.

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Difficu l t y : 02 Medium

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

121. Heuristics generally help people make faster decisions.

122. Heuristics generally help people to make decisions faster, but also to make more

errors.

123. Heuristics help people make faster, error-free decisions.

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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

124. Recognition heuristics help advertisers gain customers.

125. Heuristics generally operate in brain System 2.

126. Hardwired heuristics make it easy to change behavior by simply presenting people

with better information.

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

error.

Test Bank: I

To pic: Our Efficient, Error-Prone Brains

127. Heuristics can be exploited to lead people to positive outcomes.

128. Between System 1 and System 2 in the brain, System 1 makes most of the decisions.

129. System 1 is the part of the brain that carefully weighs the benefits and costs when

making decisions.

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error.

Test Bank: I

To pic: Our Efficient, Error-Prone Brains

130. The availability heuristic refers to people purchasing what is most easily accessible.

131. The self-serving bias causes people to act only in their self-interest.

132. The overconfidence effect exists when people underestimate their chances of being

wrong.

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Test Bank: I

To pic: Our Efficient, Error-Prone Brains

133. Framing effects may cause the same person to view the same new situation differently

depending on whether that new situation makes him or her better or worse off.

134. The presence of framing effects influences how sellers present their products to

consumers.

135. Prospect theory and the work of behavioral economists confirm that consumers are

economically rational.

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endowment effect.

Test Bank: I

To pic: Prospect Theory

136. People feel losses about two and a half times more intensely than they feel gains.

137. Firms would rather shrink package sizes than raise prices because consumers will feel

less of a loss from the change in package size.

138. Because of framing effects, a worker will be happy with a 5 percent raise regardless

of how much of a raise her fellow employees receive.

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endowment effect.

Test Bank: I

To pic: Prospect Theory

139. Anchoring leads people to consider irrelevant information when making decisions.

140. Isolating transactions from the overall set of consumption options is known as

anchoring.

141. The endowment effect describes when people value a good more when they own it

than when they don’t.