978-1259723223 Test Bank TBChap008 Part 5

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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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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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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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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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

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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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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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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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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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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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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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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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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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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

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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