Q&A Hero

Q: Regina and Brenda are considering playing a game called Matching Twenties. In this game, Regina and Brenda will each place a $20 bill on the table. Both players will then toss a fair coin. If both Regina and Brenda toss heads or both Regina and Brenda toss tails, Regina wins the $40 on the table. If one woman tosses heads and the other tosses tails, Brenda wins the $40 on the table.Regina decides that she is not willing to play this game because a loss of $20 to Brenda would cause her to lose more utility than she would gain if she won $20 from Brenda. Which concept best explains Reginas choice not to play the game?a. hedonic editing b. gain aversionc. prospect theoryd. signalinge. gain-loss asymmetry

Q: For the past five years, Benjamin has been purchasing Citizens of Humanity brand jeans each time he needs a new pair of jeans, even though a different brand, such as RocaWear or Ecko, would in all likelihood bring him more utility per dollar spent. A behavioral economist would suspect Benjamin is suffering from the ________ bias.a. egocentric b. choice-supportive c. time-savingd. status quoe. outcome

Q: Trevor has been purchasing Fruity Pebbles brand cereal each week for the past two years, even though a different brand, such as Captain Crunch or Rice Krispies, would in all likelihood bring him more utility per dollar spent. A behavioral economist would suspect Trevor is suffering from the ________ bias.a. choice-supportive b. status quo c. egocentricd. time-savinge. outcome

Q: In 1980, the Schlitz Brewing Company conducted several beer taste tests on live television during NFL football games. One hundred confirmed Budweiser drinkers (who had each signed an affidavit stating that he or she drank at least 12 bottles of Budweiser each week) were each served a glass of both Schlitz and Budweiser in unmarked containers. After tasting both beers, the members of the group were asked which beer they preferred. Between 45 percent and 55 percent of the participants responded that they preferred Schlitz, even though they were confirmed Budweiser drinkers.Which bias can likely explain why the participants in the group displayed such strong brand allegiance to Budweiser prior to the taste test?a. the availability heuristic b. the trait ascription bias c. the availability cascaded. status quo biase. the Rupertorian effect

Q: Consider the following scenario when answering the following questions:In 2000, researchers Brigitte Madrian and Dennis Shea analyzed the 401(k) savings behavior of employees in a large U.S. corporation before and after an interesting change in the company 401(k) plan.Before the plan change, employees were not automatically enrolled as participants in the company 401(k) plan upon being hired and were required to complete paperwork if they wanted to opt in. After the plan change, new employees were automatically enrolled in the 401(k) plan and were required to complete paperwork if they wanted to opt out. The amount of time and effort required to either opt in or opt out was approximately equal. None of the economic features of the plan changed.The ________ is a cognitive bias that leads people to prefer things to change as little as possible.a. status quo bias b. gamblers bias c. hot-hand fallacyd. gamblers fallacye. hot-hand bias

Q: Consider the following scenario when answering the following questions:Suppose a large electronics retailer has 1,000 salespeople who sell new computers and new computer service plans. The retailer is interested in increasing the percentage of customers who purchase a computer service plan (or warranty) with their new computer. The retailer decides to test two sales pitches by splitting its salespeople into two groups of 500 and giving each group a slightly different sales pitch to recite to customers prior to the consummation of a computer sale.The first group of salespeople recites the following sales pitch: Before you pay, I wanted to let you know that all of our new computers come automatically with a warranty that adds $150 to the purchase price. If you wish to opt out and decline the warranty, all you need to do is fill out and sign a form attesting to your refusal.The second group of salespeople recites the following sales pitch: Before you pay, I wanted to let you know that, although none of our new computers come automatically with a warranty, you can purchase one by adding $150 to the purchase price. If you wish to opt in and accept the warranty, all you need to do is fill out and sign a form attesting to your acceptance.Suppose that 34 percent of customers hearing the sales pitch from the first group purchased the warranty and that 34 percent of the customers hearing the sales pitch from the second group purchased the warranty. The managers concluded that ________ were not present, so it did not matter how the question about purchasing the warranty was asked.a. rational effects b. electronic aptitude effects c. concerns about fairnessd. framing effectse. fairness effects

Q: Suppose 500 residents of a dormitory are separated into two groups. The first group is asked the following questions in this order: How happy are you with your experience living in the dormitory? followed by How many social gatherings held in the dormitory have you been invited to?The second group is asked the following questions in this order: How many social gatherings held in the dormitory have you been invited to? followed by How happy are you with your experience living in the dormitory?Further suppose that residents in the second group who reported that they had been invited to fewer social gatherings held in the dormitory reported being less happy with their experience living in the dormitory than did similar residents in the first group. This is an example of ________ effects.a. priming b. Kahnemanian c. internal rate of returnd. market capitalizatione. Rothbardian

Q: Suppose 8,000 residents at an apartment complex are separated into two groups. The first group is asked the following questions in this order: How happy are you with your experience at the apartment complex? followed by How many social gatherings held at the apartment complex have you been invited to?The second group is asked the following questions in this order: How many social gatherings held at the apartment complex have you been invited to? followed by How happy are you with your experience at the apartment complex?Further suppose that residents in the second group who reported that they had been invited to more social gatherings held at the apartment complex reported being much happier with their experience at the apartment complex than did similar residents in the first group. This is an example of ________ effects.a. Kahnemanian b. Rothbardian c. internal rate of returnd. market capitalizatione. priming

Q: Suppose 1,000 college students are separated into two groups. The first group is asked the following questions in this order: How happy are you with your college experience? followed by How many friends have you made in college?The second group is asked the following questions in this order: How many friends have you made in college? followed by How happy are you with your college experience?Further suppose that students in the second group who reported that they had met more friends in college reported being much happier than did similar students in the first group. This is an example of ________ effects.a. rationality b. priming c. dorm roomd. financial aide. felinarian

Q: Suppose 600 cancer patients have identical diagnoses. The patients are separated into two groups of 300 and asked the following questions regarding a potentially beneficial radiation therapy treatment.The first group was given the following statement and then asked the following question: Statistically, 950 out of every 1,000 cancer patients survive more than two years following the radiation treatment. Would you be willing to undergo the radiation treatment?The second group was given the following statement and then asked the following question: Statistically, 50 out of every 1,000 cancer patients die within the two years following the radiation treatment. Would you be willing to undergo the radiation treatment?Suppose that 78 percent of the patients in the first group answered yes and that 31 percent of the patients in the second group answered yes. Because the first statement that was given to both groups essentially states the same statistical fact in a different way, the significant difference in the answers recorded for each group is likely an example of a ________ effect in decision-making.a. placebo b. Taylorian c. utilitariand. wordinge. framing

Q: Suppose 5,000 students were split into two groups of 2,500. Both groups were first presented with an image of a new high-end pair of shoes produced by UGG, a footwear company.The first group was given the following statement and then asked the following question: The normal retail price of these shoes is $200. Would you be willing to pay $125 for them?The second group was given the following statement and then asked the following question: The normal retail price of these shoes is $450. Would you be willing to pay $125 for them?Suppose that 13 percent of the students in the first group answered yes and that 63 percent of the students in the second group answered yes. It is likely that more students in the second group were willing to pay $125 for the pair of shoes because they were told the normal price was much higher. This is an example of a ________ effect in decision-making.a. bootstrapping b. market-making c. utilitariand. framinge. psychosomatic

Q: Priming effects a. occur when the ordering of the questions that are asked influences the answers. b. occur when the ordering of the questions that are asked does not influence the answers. c. occur when a decision maker makes a rational decision based on a complete assessment of the costs and benefits. d. are observed only in the context of political affairs. e. are observed only when the decision maker has an advanced graduate degree in particle physics.

Q: Consider the following scenario when answering the following questions:Corey and Trevor are playing a coin-tossing game where each player, in turn, tosses a fair coin consecutively 10 times. The winner of the game is the player who tosses the most consecutive tails. Corey decides to go first and tosses tails five times in a row. Ricky and Julian are observing the game and have the following conversation before Corey attempts the sixth toss:Ricky: The probability of Corey tossing tails has to be greater than 75 percent because he is on a roll!Julian: No, Ricky, the probability of Corey tossing tails has to be less than 25 percent because he is due to toss heads.________ occur when the ordering of the questions that are asked influences the answers.a. Rational expectations b. Hot-hand effects c. Fairness effectsd. Priming effectse. Quasi-rational effects

Q: A ________ effect occurs when an answer depends on how a question is asked or when a decision is influenced by the way alternatives are presented. a. framing d. priming b. hot-hand e. behaviorist c. Hayekian

Q: Titus and Lauren are playing a coin-tossing game where each player tosses a fair coin 20 times consecutively. The winner of the game is the player who tosses the most consecutive tails. Titus decides to go first and tosses tails five times in a row. Their parents, Margaret and Remi, are observing the game and make the following observations before Titus attempts the sixth toss:Margaret: The probability of Titus tossing tails has to be greater than 75 percent because he is on a roll!Remi: No, Margaret, the probability of Titus tossing tails has to be less than 25 percent because he hasnt tossed heads in the last five tosses and he is due to toss heads!A behavioral economist would conclude that Margarets statement is an example of the ________ fallacy, and Remis statement is an example of the ________ fallacy.a. continuum; hot-hand b. hot-hand; broken-window c. gamblers; hot-handd. hot-hand; gamblerse. behavior; broken-window

Q: In the 1990s, researchers Clotfelter, Cook, and Terrel analyzed data from a particular game of chance that was offered in both the Maryland and New Jersey state lotteries. In the game, participants placed a bet and then guessed a three-digit number. After all bets had been placed, a three-digit number was randomly drawn by state lottery representatives. If a bettor correctly guessed the number drawn, the bettor won a large prize. The researchers found clear evidence that lottery players bet less on a number that had won in the recent past. This finding indicates that the ________ fallacy is not at work.a. hot-hand b. gamblers c. casinosd. genetice. naturalistic

Q: If 25 consecutive tosses of a fair coin have all been heads, some individuals tend to think that the next one must be heads. This is an example of the ________ fallacy.a. hot-hand b. continuum c. broken-windowd. definiste. gamblers

Q: If 12 consecutive tosses of a fair coin have all been tails, some individuals tend to think that the next one must be tails. This is an example of the ________ fallacy.a. casinos b. dealers c. gamblersd. masked-mane. hot-hand

Q: The opposite of the gamblers fallacy is thea. hot-hand fallacy. b. historians fallacy. c. fallacy of single cause.d. dealers fallacy.e. mind-projection fallacy.

Q: Suppose a student tosses a fair coin consecutively 10 times and gets tails each time. Which belief about the probability of getting heads on the next toss is NOT consistent with the gamblers fallacy?a. The probability of getting heads on the next toss is u2158.b. The probability of getting heads on the next toss is u215a.c. The probability of getting heads on the next toss is .d. The probability of getting heads on the next toss is .e. The probability of getting heads on the next toss is u00bd.

Q: Miranda tosses a fair coin consecutively five times and gets heads each time. When her son Shane asks her about the probability of getting tails on the next (sixth) toss, Miranda says the following: This is a fair coin, so I should toss heads approximately 50 percent of the time. Because I have tossed heads 100 percent of the time for my first five tosses, then the probability of me tossing tails on the sixth toss must be greater than 50 percent. Mirandas statement is an example of the ________ fallacy.a. hot-hand b. association c. gamblersd. dealerse. Showtime

Q: Consider the following scenario when answering the following questions:Imagine a game show on television where one lucky contestant is presented with four upside-down buckets that are numbered 1, 2, 3, and 4. Under one of the buckets is a $100 bill. Under each of the other three buckets is a $10 bill. After the game ends, the contestant will receive the amount of money that is under his or her bucket.The host of the game show asks the contestant to choose one of the four buckets. After the contestant makes a choice, the host lifts one of the remaining three buckets to reveal a $10 bill under it. At this point, three buckets remain uncovered: the bucket that the contestant originally chose and the two buckets that were not uncovered by the host.The host subsequently asks the contestant if he or she would like to keep the original bucket or change buckets to one of the two other buckets remaining.If 12 consecutive tosses of a fair coin have all been tails, some individuals tend to think that the next one must be heads. This is an example of the ________ fallacy.a. casinos b. dealers c. gamblersd. masked-mane. hot-hand

Q: Imagine a game show on television where one lucky contestant is presented with three upside-down buckets that are numbered 1, 2, and 3. Under one of the buckets is a five-ounce gold bar. Under each of the other two buckets is a one-ounce gold bar. After the game ends, the contestant will receive the gold bar that is under his or her bucket.The host of the game show asks the contestant to choose one of the three buckets. The contestant chooses bucket #1. After the contestant makes a choice, the host lifts up bucket #2 to reveal a one-ounce gold bar under it. At this point, only two buckets remain uncovered: the bucket that the contestant originally chose (bucket #1) and the bucket that was not uncovered by the host (bucket #3).The host subsequently asks the contestant if he or she would like to keep the original bucket or change buckets to the only other bucket remaining. The contestant changes buckets from the original bucket (bucket #1) to the other bucket remaining (bucket #3). When the contestant originally made the choice of bucket #1, the probability of the five-ounce gold bar being under that bucket was u2153 . This means that the probability of the five-ounce gold bar being under either bucket #1 or bucket #2 was u2154 . When the host lifted bucket #2 to reveal a one-ounce gold bar under it, the probability of the five-ounce gold bar being under bucket #3 is now ________, while the probability of the five-ounce gold bar being under bucket number #1 is still ________.a. u00bd ; u2153 b. u2154 ; u2153 c. u2153 ; u2153d. u2153 ; u2154e. u00bd ; u2154

Q: Suppose a casino is offering a game of chance where Ricardo can bet $6 on the flip of a fair coin. If the casino employee flips tails, Ricardo loses the $6 that he bet. If the casino employee flips heads, Ricardo receives a payout of $11 (the $6 he originally bet plus another $5). If Ricardo sits in the casino and plays this game 1,000 times consecutively over a period of 12 hours, he a. will likely end up with less money than he started with. b. will likely end up with more money than he started with. c. will likely end up with the same amount of money that he started with. d. is equally likely to end up with more money or less money than he started with. e. will definitely end up with less money than he started with.

Q: Suppose a casino is offering a game of chance where Teresa can bet $5 on the flip of a fair coin. If the casino employee flips tails, Teresa loses the $5 that she bet. If the casino employee flips heads, Teresa receives a payout of $11 (the $5 she originally bet plus another $6). If Teresa sits in the casino and plays this game 1,000 times consecutively over a period of 12 hours, she a. will likely end up with less money than she started with. b. will likely end up with more money than she started with. c. will likely end up with the same amount of money that she started with. d. is equally likely to end up with more money or less money than she started with. e. will definitely end up with less money than she started with.

Q: Which of the following is an example of a game of chance? a. Jeremiah plays basketball with his girlfriend. b. Joan works eight hours at Taco Bell. c. Jacqueline buys a lottery ticket. d. John runs in a marathon. e. Jalisha purchases salsa dancing shoes.

Q: Which of the following activities involves Mary playing a game of chance? a. Mary works eight hours at Dairy Queen and earns a total of $60. b. Mary spends $250 on a used video game console. c. Mary wins a $1,000 Visa gift card in a competitive food-eating competition. d. Mary wins a $500 prize in a business plan competition. e. Mary deposits $5 in a slot machine and does not win anything.

Q: Most state lotteries a. have positive expected values. b. have negative expected values. c. have expected values equal to zero. d. do not have expected values because state lotteries are not games of chance. e. do not have expected values because most state lotteries are operated by government agencies.

Q: For mathematical convenience, assuming that people are fully rational and self-interested a. clearly does not mean that people really are fully rational and self-interested all the time. b. clearly means that people really are fully rational and self-interested all the time. c. is a practice never followed by economists, but is often followed by psychologists. d. is a practice always followed by behavioral economists. e. is a practice that is banned in most states by professional ethics laws.

Q: In 2011, Edward Cartwright, a behavioral economist, gave credit to the Nobel Prizewinning economist Herbert Simon for launching what Cartwright calls the you cannot be serious attack on the standard economic model. Cartwright cites a paper published by Simon in 1955, where the author uses the standard economic model to solve elegantly how a rational person should behave. After solving an equation for this rational persons optimal behavior, Simon states: My first empirical proposition is that there is a complete lack of evidence that, in actual human choice situations of any complexity, these computations can be, or are in fact, performed.This statement by Simon can be best described as a call toa. governments for increased education spending so that more decision-makers can and will perform the computations that Simon is referring to.b. citizens to do their part to reduce the complexity of all human choice situations.c. economists to replace Homo economicus in economic thinking with something more humanlike.d. economists to continue to use Homo economicus to guide their understanding of the complex nature of human decision-making.e. the United States Department of Economic Rationality to impose a new bylaw prohibiting the use of the standard economic model in academic research papers.

Q: In 1990, Richard Thaler, a behavioral economist, said the following with respect to the standard economic model: The problem seems to be that while economists have gotten increasingly sophisticated and clever, consumers have remained decidedly human. Which of the following statements best describes what Thaler implies in this sentence? a. The standard economic model should be dumbed down so that more citizens can understand it. b. The standard economic model fails to account for the fact that human beings generally do not act like Homo economicus. c. Economists should educate citizens to become more sophisticated and clever so that their actions better fit the standard economic model. d. The behavioral economic model needs to be abandoned. e. Human nature is neither clever nor sophisticated.

Q: A consumer who adheres to bounded rationality is a. a fully rational consumer who behaves like an all-knowing supercomputer when making cost-benefit calculations. b. a completely irrational consumer who is unable to use logic to compare costs and benefits. c. neither capable of performing the problem-solving that traditional economic theory assumes nor is inclined to do so. d. rational only in situations that involve market prices. e. never rational in situations that involve market prices.

Q: In 2002, Daniel Kahneman was awarded the Nobel Prize in Economics for having integrated insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty.Based on this information, which academic field would Daniel Kahneman most likely identify with?a. economics b. industrial-organizational sociology c. evolutionary biologyd. Englishe. behavioral economics

Q: When comparing the standard models in the respective fields of economics and psychology, it is clear that a. both economists and psychologists always assume that people always behave in a fully rational way. b. both economists and psychologists always assume that people do not act in a fully rational way. c. neither economists nor psychologists always assume that people always behave in a fully rational way. d. economists generally assume that people always behave in a rational way, whereas psychologists generally do not. e. psychologists generally assume that people always behave in a rational way, whereas economists generally do not.

Q: Whenever consumers make decisions without perfect information, the decision reflectsa. perfect rationality. b. perfect irrationality. c. bounded rationality.d. unbounded rationality.e. confounded rationality.

Q: Behavioral economists draw on insights from ________ to explore how people behave in economic settings.a. experimental psychology b. experimental biology c. evolutionary biologyd. astrologye. theoretical physics

Q: A relatively new area in the field of economics called ________ economics studies people who appear to make choices that do not seem rational in an economic sense.a. business-cycle b. financial c. behaviorald. labore. entrepreneurial

Q: Behavioral economics studies a. economy-wide phenomena such as real output, inflation, unemployment, and business cycles. b. the decision-making processes of rational, self-interested economic actors. c. all aspects of the markets and institutions that make up the financial system. d. the implications of trade among individuals, firms, and countries. e. how experimental psychology provides insight into the decision-making process.

Q: Behavioral economics studies how ________ influences the decision-making process.a. the weather pattern b. rational economic action c. experimental psychologyd. the financial sectore. macroeconomics

Q: ________ is the field of economics that studies how experimental psychology influences the decision-making process.a. Public finance b. Psychology c. Behavioral economicsd. Sociologye. Macroeconomics

Q: Behavioral economics seeks to dethrone ________ and replace him with something more human.a. Homo rationalimus b. Homo economicus c. Homo macrusd. Homo sapiense. Homo stevejobsimus

Q: The traditional economic model conceptualizes the economy as made up of infinitely calculating, unemotional maximizers that have been calleda. Homo consumus. b. Homo economicus. c. Homo microcus.d. Homo demandcurvius.e. Homo elasticious.

Q: The standard economic model assumes people can be approximated by ________, who is assumed to be fully rational, calculating, and selfish; has unlimited computational ability; and never makes systematic mistakes.a. Homo consumus b. Homo microcus c. Homo demandcurviusd. Homo economicuse. Homo elasticious

Q: Most economic theory proceeds as though economic actors are all rational, self-interested decision-makers. Economists refer to this hypothetical rational, self-interested decision maker asa. Homo consumus. b. Homo microcus. c. Homo demandcurvius.d. Homo economicus.e. Homo elasticious.

Q: CHAPTER 17: Behavioral Economics and Risk TakingThe hypothetical species Homo economicus is acutely aware of opportunities in the environment anda. strives to maximize the benefits received from each course of action while minimizing the costs.b. strives to minimize the benefits received from each course of action while maximizing the costs.c. strives to equalize the benefits received and costs incurred from each course of action.d. takes an action only if the benefits to society of this action outweigh the costs to society of this action.e. never takes action because of the understanding that all individual actions are to the detriment of society.

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Q: We would describe a persons choices as time inconsistent when people a. cant make choices in the present that determine their choices in the future. b. cant predict how current choices will affect future choices. c. change their minds just because that was then, this is now. d. regret a decision they made, so they wont make the same decision again. e. try to figure out how they will decide in the future, and that decision influences todays decision.

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Q: Peoples choices for the present time frame are usually ________ with their choices for the future because the future choices are ________. a. inconsistent; a result of status quo bias b. consistent; a result of priming effects c. inconsistent; a result of framing effects d. inconsistent; more distant in time e. consistent; more likely to have more information

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Q: Ana keeps delaying to act on her resolution to work out at the recreation center. Her preference is a. a result of status quo bias. b. a result of priming effects. c. a result of framing effects. d. more consistent since the decision is made in the present rather than the future. e. time inconsistent.

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Q: An important source of human behavior bias in decision-making comes froma. resistance to change. b. price. c. temptation.d. limited reasoning.e. randomness.

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Q: People notice that when they shop online, they see a box checked that tells them to uncheck the box if they dont want to receive news of new products. This checked box is an example of aa. priming effect. b. framing effect. c. intertemporal decision bias.d. status quo bias.e. preference reversal.

Q: SHORT ANSWER1. What are the three ways that bounded rationality, or limited reasoning, can be explained?

Q: Victor complains that he never has enough time to do his homework. He brags that he has won 96 percent of 4,000 games of FreeCell this semester. Which of the following economic concepts of behavior is applicable?a. rational b. irrational c. bounded rationald. limited reasoninge. preference reversal

Q: Economists who study behavior mostly conclude that people ________ well-being, but sometimes ________.a. try to maximize their; make mistakesb. try to maximize their; maximize the effect of bad choicesc. try to achieve some; change their minds just because that was then, this is nowd. dont worry too much about their; get lucky with a good decisione. believe they maximize their; dont worry too much about it

Q: A choice that does not follow the assumption of rational behavior is a. telling people you want to lose weight, but ordering dessert after a meal. b. paying more to use a credit card than you would if you used cash. c. refusing to leave a movie that brings no pleasure. d. complaining about lack of time while you play solitaire. e. All of the above behaviors do not follow the assumption of rational behavior.

Q: Marcus gets a new cell phone for graduation. He abandons his old phone in a drawer forever, even though he could sell it on Craigslist for $50. Marcuss behavior is a. irrational, because he wouldnt pay $50 for his old phone today, and still gives it up. b. rational, because he wouldnt pay $50 for his old phone today, and still gives it up. c. irrational, because the value of his new phone is $300 and should be compared to the $50 value of the old phone. d. rational, because the value of his new phone is $300 and should be compared to the $50 value of the old phone. e. neither rational nor irrational, since Marcus didnt buy the new phone.

Q: Maria gets two tickets to the opera as a tip bonus from a restaurant customer. She has never been to an opera, nor would she ever pay the $130 price for these tickets. She goes to this opera rather than getting $130 online for selling the tickets. Marias behavior is a. irrational, since Maria would not buy such tickets but gives up $130 by not selling the tickets. b. rational, since Maria believes she should see the opera. c. irrational, since Maria cant put a value on the tickets. d. rational, since Maria can now see an opera without paying. e. neither rational nor irrational, since Maria didnt buy anything.