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233. Behavioral economists suggest that the reason why many consumers tend to stick to
one brand in things that they often buy, like food items, is people's tendency to have the
234. Prospect theory explains the status-quo bias as a combination of loss aversion and the
8-98
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Dif f icu l ty : 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
235. Myopia and time inconsistency are major stumbling blocks that behavioral
economists have found in people's ability to make decisions that involve trade-offs
between
236. Myopia means
237. People's tendency to prefer something that will yield immediate benefits over
something whose benefits come later is called what by behavioral economists?
8-99
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written consent of McGraw-Hill Education.
A.
myopia
B. mental accounting
C. anchoring
D. framing
238. According to behavioral economics, the difficulty among many people to sufficiently
save for their retirement is partly explained by
239. According to behavioral economics, the difficulty among many people to stick to a
diet or an exercise plan is partly explained 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.
make suboptimal long-run decisions.
Test Bank: II
Topic: Myopia and Time Inconsistency
240. The tendency of people to misjudge, at the present time, what they will want to do or
have at some future time is called
241. According to behavioral economics, one major cause of self-control problems (such
as strictly following through on "new year's resolutions") is
242. So-called precommitments are effective ways of fighting
243. Examples of precommitments to deal with people's time inconsistency problems
include the following, except
244. The tendency of people to discount long-term values more than they do near-term
values—making many people “future blind”— is known in behavioral economics as
245. Which of the following do behavioral economists blame for why many households in
sunny areas resist solar panels because they focus on the upfront installation costs instead
of the larger long-run benefits that accrue from the solar panels?
246. The neoclassical economists’ "invisible hand" of the market is driven by people's
247. Neoclassical economic analysis tends to disregard the following motivations in
people's decisions and actions, except
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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: Remember
Di f f i c u l t y : 01 Easy
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: II
Topic: Fairness and Self-Interest
248. The facts that many people give to charity and that most people obey the law
regardless of whether someone is watching or not, are field evidence for
249. Neoclassical economics assumes the following as major motivators of decisions and
actions, except
250. The dictator game and ultimatum game are experiments that have provided field
evidence for
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written consent of McGraw-Hill Education.
A. the invisible hand.
B.
fairness.
C. self-interest.
D. cognitive biases.
251. Some economists are suggesting that we should use the insights of behavioral
economics to
252. Key features of so-called nudges include the following, except that
8-105
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written consent of McGraw-Hill Education.
Test Bank: II
Topic: Fairness and Self-Interest
253. "Nudging" is the term used to refer to making people make better choices for
themselves, using lessons about human behavior which economists have learned from
254. Behavioral economics developed as a field of study that looks into how people make
rational decisions based on self-interest.
255. One major point of disagreement between neoclassical economics and behavioral
economics is the assumption of rationality.
8-106
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Di f f i c u l t y : 01 Easy
Learning Objective: 08-01 Define behavioral economics and explain how it contrasts with
neoclassical economics.
Test Bank: II
Topic: Systematic Errors and the Origin of Behavioral Economics
256. Neoclassical economics and behavioral economics are similar in the assumption that
people are capable of making accurate, sometimes complex, calculations with respect to
their utility-maximizing decisions.
257. Neoclassical economics focuses on predicting the behavior of economic agents,
whereas behavioral economics focuses on the mental processes involved in decision
making.
258. Behavioral economics hopes to eventually fully replace the neoclassical economic
model.
8-107
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Di f f i c u l t y : 01 Easy
Learning Objective: 08-01 Define behavioral economics and explain how it contrasts with
neoclassical economics.
Test Bank: II
Topic: Systematic Errors and the Origin of Behavioral Economics
259. One major tenet of behavioral economics is that the human brain is prone to commit
errors in perception.
260. The low-energy mental shortcuts, or heuristics, that the human brain commonly
employs is one major reason for the systematic errors in decision making that people make,
which is the focus of behavioral economics.
261. One consequence of the confirmation bias is that many people believe that they could
"beat the (stock) market."
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written consent of McGraw-Hill Education.
Blooms: Understand
Dif f icu l ty : 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
262. When people often blame an "act of nature" or their colleagues for their plans going
awry, they are illustrating the cognitive bias known as the overconfidence effect.
263. When people change their decision just because the context of the given information
is changed, we call that the "framing effect."
264. The "hedonic treadmill" of prospect theory suggests that if people's incomes rise and
stay at the new higher level, then their feelings of satisfaction also rise and stay at the new
higher level.
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written consent of McGraw-Hill Education.
AACSB: Knowledge Application
Acc essi bi l ity : Keyboard Navigation
Blooms: Understand
Dif f icu l ty : 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
265. The anchoring effect suggests that when people are made to think of large abstract
numbers before they go shopping, many of them will subsequently be willing to pay higher
prices for stuff.
266. The endowment effect makes people value things less when they think of those things
as their own as opposed to identical things that are not theirs—as in "the grass is greener
on the other side."
267. "Loss aversion" helps explain why people buy insurance policies with lower
deductibles even though the policies are more expensive.
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268. The status quo effect suggests that giving people more options is always good for
them.
269. Automatic payroll deductions help people to fight their time inconsistency problem
with regards to saving.
270. Self-control problems, say, among people on a diet, is caused by the cognitive bias
known as time inconsistency.
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271. Sellers' sense of fairness in pricing can sometimes lead them to pricing decisions that
do not maximize profits.
272. Sellers' sense of fairness is always consistent with the notion of rational self-interest
of neoclassical economics.
273. The many quirky decisions that people often make, which behavioral economics have
found and analyzed, are so ingrained in the human psyche that there is nothing that
policymakers can do about helping people make better choices for themselves.
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written consent of McGraw-Hill Education.
FA LSE
274. The idea of "nudging" people into certain choices is one major contribution of
behavioral economics to policy making.
