1. Motivations for behavioral economics include:
A. people sometimes make choices that are inconsistent with standard economic theory.
2. Behavioral economists:
D. avoid mathematical models of behavior, as they do not adequately describe real world actions.
3. Behavioral economists:
D. typically assume that each individual has well-defined objectives and avoid mathematical
models of behavior, as they do not adequately describe real world actions.
4. Which of the following does NOT describe an advantage of experiments?
A. With experiments, it is easier to determine whether people’s choices are consistent with
standard economic theory.
5. Experiments:
A. make it easier to determine whether people’s choices are consistent with standard economic
theory, but can make it harder to establish causality.
6. Which of the following is true regarding the use of laboratory experiments in economic
analysis?
D. Economic analysis to date has never successfully employed laboratory experiments.
7. Disadvantages of experiments include the fact that:
D. decisions made in the laboratory replicate those made in the real world and the number of
subjects is typically so large, that it is difficult to apply the results to economic behavior in the
population.
8. Neuroeconomics is a new field of economics motivated by the speculation that studying
the human neural system can lead to:
D. tenure.
9. Which of the following concepts should be LEAST associated with behavior economics?
D. Neuroeconomics
10. Identified departures from perfect rationality include:
A. incoherent choices.
11. Among the evidence that people do not always make choices that reflect sensible
preferences are examples of:
D. All of these provide evidence that people do not always make choices that reflect sensible
preferences.
12. Anchoring occurs when:
D. someone’s choices are based solely upon proven and relevant information.
13. The endowment effect:
D. refers to the observation that people do not have a strong attachment to the status quo.
14. The default effect:
A. refers to the observation that people tend to value something more highly when they own it
than when they don’t.
15. The endowment effect is reflected by indifference curves that are:
A. concave to the origin.
16. Narrow framing:
A. refers to the observation that people tend to value something more highly when they own it
than when they don’t.
17. Suppose you conduct a study in which subjects are asked the following questions: 1.
“Imagine that you have decided to go to a basketball game where the cost is $25 per ticket. As
you enter the arena, you discover that you have lost your $25. Would you still pay $25 for a
ticket?” 2. “Imagine that you have decided to go to a basketball game and you pay $25 for the
ticket. As you are walking into the arena you realize that you have lost your ticket. Would you pay
another $25 for another ticket?” You find that 90% of your subjects answered “Yes” to the second
question, compared to the 50% that answered “Yes” to the first question. This is an example of:
A. the default effect.
18. Which of the following explanations, if true, for the observation that 80% of your
company’s employees choose not to opt into the company’s optional retirement plan would be the
LEAST consistent with standard economic theory?
A. Company-sponsored retirement plans tend to have lower-than-average returns over the long
run.
19. A person who uses a
rule of thumb
to determine the best rate of savings:
A. is necessarily making a mistake, since finding the best rate of savings involves complex
mathematical models.
20. Behavioral economists view the standard economic theory of decisions involving time as
being too restrictive because people:
A. have lapses in self-control.
21. Behavioral economists view the standard economic theory of decisions involving time as
being too restrictive because people have:
D. lapses in self-control and a tendency to ignore sunk costs.
22. A person is dynamically consistent if:
A. his preferences over the alternatives available at some future date change as the date
approaches.
23. A person is dynamically consistent if:
D. None of these is correct.
24. A person is dynamically consistent if:
A. lapses in his self-control never occur.
25. A person is dynamically inconsistent if:
A. lapses in self-control never occur.
26. A person is dynamically inconsistent if:
A. lapses in self-control occur.
27. A dieter who prefers to eat small portions at his next meal, but chooses a large portion at
mealtime when it arrives is:
D. exhibiting a past bias.
28. A dieter who prefers to eat small portions at his next meal, but chooses a large portion at
mealtime when it arrives is:
A. dynamically consistent.
29. Pre-commitment is:
D. All of these are true about pre-commitment.
30. A person who is, all else equal, more willing to throw away a $20 shirt than a $200 shirt,
even if both are worn out, is:
A. dynamically inconsistent.
31. Projection bias:
D. can lead people to overestimate their adaptability.