978-1259723223 Test Bank TBChap008 Part 6

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

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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?

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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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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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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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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

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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.

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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.

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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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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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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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FA LSE

274. The idea of “nudging” people into certain choices is one major contribution of

behavioral economics to policy making.