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195. One major consequence of the overconfidence effect is that
196. When people base their estimates of the likelihood of an event on how often they've
heard of such an event, they illustrate the
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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.
computationally restricted, reliant on heuristics, and prone to various forms of cognitive
error.
Test Bank: II
Topic: Our Efficient, Error-Prone Brains
197. When people believe murder is a more common cause of death than stomach cancer
is, it illustrates the
198. One major consequence of the availability heuristic is that
199. The tendency of people to underestimate the time required to complete a task is called
the
200. One explanation for why major construction projects often get completed way behind
schedule is the
201. When students end up doing "all-nighters" just to finish a term paper, it illustrates the
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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.
Accessibility: Keyboard Navigation
Blooms: Understand
Difficul 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: II
Topic: Our Efficient, Error-Prone Brains
202. One major consequence of the planning fallacy is that
203. When people react to (or perceive) identical situations differently in different
contexts, we call that the
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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.
error.
Test Bank: II
Topic: Our Efficient, Error-Prone Brains
204. When ordinarily neat people tend to litter in areas that are covered with graffiti, they
illustrate the
205. When gasoline at $3.60/gallon looks relatively cheap after a period of $5/gallon gas,
that's an illustration of the
206. When economists talk about a "new normal" in terms of conditions in the production
and employment sectors, they are suggesting a change in people's perceptions influenced
by the
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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.
A. hindsight bias.
B. confirmation bias.
C. availability heuristic.
D.
framing effect.
207. High-end retailers spend a lot on architecture, displays, and packaging in order to take
advantage of the
208. One major consequence of the framing effect is that
8-87
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Understand
Difficul 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: II
Topic: Our Efficient, Error-Prone Brains
209. One of the important contributions of behavioral economics is the focus on how
people make decisions involving
210. Behavioral economists have not discovered which of the following things about
people's reaction to losses?
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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.
endowment effect.
Test Bank: II
Topic: Prospect Theory
211. Which of the following facts is not a basis for prospect theory in behavioral
economics?
212. The following are major observations made by behavioral economists regarding
human behavior, except
213. One implication of the phenomenon described by economist Richard Easterlin as the
"hedonic treadmill" is that
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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.
A. people who consume more goods and services are happier than those who consume
less.
B.
people can only become happier if they are consuming more and more.
C. there is a threshold of consumption that one must cross before one can be happy.
D. we can combine the happiness of different individuals to get "total happiness."
214. Which of the following statements about the so-called "hedonic treadmill" is not true?
215. Prospect theory in behavioral economics predicts that as the price of flour increases,
bakeries will try to avoid turning off their buyers by
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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.
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Blooms: Understand
Difficul 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: II
Topic: Prospect Theory
216. Prospect theory is based on behavioral economists’ understanding of how people
217. Prospect theory would suggest that
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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.
endowment effect.
Test Bank: II
Topic: Prospect Theory
218. Which of the following questions best illustrates the "framing effects" studied by
behavioral economists?
219. Framing effects in prospect theory indicate that a given result, such as "an investment
return of 10 percent,"
220. Which of the following statements about behavioral economics is not true?
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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.
A. Its insights help policymakers determine how to nudge people to make certain choices.
B. It combines insights from economics, psychology, and neuroscience to better understand
how people behave.
C.
It assumes that people are always rational, deliberate, and objective in their choices.
D. It studies how people deal with choices involving "goods" as well as "bads."
221. That most people would prefer to buy meat that is 80 percent lean rather than meat
that is 20 percent fat is an illustration of the
222. The "anchoring" phenomenon observed by behavioral economists refers to the fact
that people's estimates of the value of things are affected by
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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.
Blooms: Understand
Difficul 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: II
Topic: Prospect Theory
223. Credit card companies put a low "minimum required payment" on people's bills in the
hope that people will send in low payments, thereby allowing the card companies to earn
more interest. The companies are trying to exploit the
224. Fred just purchased an expensive new refrigerator and is considering purchasing the
overpriced warranty. In making his decision on the warranty, Fred ignores better ways that
his money could be spent, including paying off high-interest credit card debt. According
to prospect theory, the process that leads Fred to ignore the debt and buy the overpriced
warranty is
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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.
endowment effect.
Test Bank: II
Topic: Prospect Theory
225. 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
226. The tendency of people to overestimate the value of their possessions when, say,
considering such value for insurance purposes is known in prospect theory as the
227. Economist John List has shown that the so-called endowment effect tends to be lower
among people who often
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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.
B. buy things for personal long-term use.
C. produce things for themselves.
D. value their possessions.
228. That people tend to hold on to shares of stock well past the point where it makes
sense to sell those shares can be explained in part by the
229. Some behavioral economists explain the so-called endowment effect to be a
consequence of people's tendency to
8-96
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
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: II
Topic: Prospect Theory
230. People's tendency to prefer the "default" option over other options is known in
prospect theory as
231. Behavioral economists have found that one major explanation for the intercountry
differences in participation rates in organ-donation programs is
232. Behavioral economists suggest that brand loyalty, which can be a source of monopoly
power for the producer, may be explained by consumers' tendency to have the
