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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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written consent of McGraw-Hill Education.
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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written consent of McGraw-Hill Education.
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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written consent of McGraw-Hill Education.
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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written consent of McGraw-Hill Education.
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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Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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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written consent of McGraw-Hill Education.
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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written consent of McGraw-Hill Education.
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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written consent of McGraw-Hill Education.
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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written consent of McGraw-Hill Education.
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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Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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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written consent of McGraw-Hill Education.
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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written consent of McGraw-Hill Education.
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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written consent of McGraw-Hill Education.
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.
