Exam 18: Behavioral and Experimental Economics

Amazon.com changed its prices based on customers' geographic location to determine how price changes affect sales. This is an example of a:

The sunk cost fallacy is the:

Yesterday, Melinda bought a ticket for today's show. She has a splitting headache and normally would not go. However, she has already paid for the ticket, so she decides to go to the theater and get her money's worth. What behavioral bias is Melinda showing?

Peter said, "It's time to bring our troops home from Afghanistan." Ava responded, "We need to keep our troops in Afghanistan or the deaths of all the soldiers who lost their lives fighting will be wasted." What behavior economics bias was Ava committing?

Suppose that the average level of prices in the economy fell 4% and workers' wages were cut by 2%. Which of the following statement(s) is (are) TRUE? I. Real wages of workers increased. II. The nominal wages of workers were cut. III. Workers who were loss averse felt worse off.

How might firms conduct field experiments?

What are the shortcomings of lab experiments?

Outlet stores frequently advertise huge discounts off base prices. Although nobody actually pays the base price, the large discount may convince consumers that they are getting a good deal. The outlet stores are using the high base prices as a form of:

In an experiment, each subject observed a random spin of a wheel that showed values from 0 to 100. The subjects were then asked to guess the number of African countries in the United Nations. If the subjects were affected by anchoring, the researchers likely found _____ correlation between the number on the wheel and the subject's guess.

What is econometrics?

Sasha keeps her money in specific accounts for specific purposes. For example, when she saves for a car, she has a car savings account. Sasha is exhibiting _____.

An infomercial is selling a thigh toner for either $99 or three monthly payments of $39 (in which the first payment occurs immediately and remaining payments occur at the end of the next two months). a. Calculate the net present value of the three-month installment plan at a discount rate of 1% per month. Which payment option makes the consumer better off? b. Calculate the net present value of the three-month installment plan, using hyperbolic discounting. Assume that the monthly discount rate of 1% is discounted an additional 40%. Which payment option makes the consumer better off?

In 1992, New Jersey raised its minimum wage, but Pennsylvania, a neighboring state, did not. This change set up _____ experiment.

Explain whether the following statement does or does not exhibit time inconsistency: "A person prefers $100 today to $150 one year from now but prefers $150 in seven years to $100 in six years."

Give an example of each of the following systematic biases. a. being overconfident b. having self-control problems and using hyperbolic discounting c. falling prey to framing due to anchoring d. paying attention to sunk costs e. relying on generosity and selflessness

Which scenario represents time inconsistency?

Suppose that most people who plan to work out at a gym are overly optimistic about how many times they will use the gym in the upcoming year. A rational gym owner might respond by selling:

A recent willingness-to-pay survey asked respondents to value the waters of Salem Sound. The respondents were asked what they would be willing to pay to help protect the water. They were given the following choices: $10, $40, $100, $300, $650, $1,000, $3,000, $10,000 or fill in a value for some other amount. What type of behavioral bias will be captured by this question the way it is written?

Which economists accounted for "rational addiction" in utility functions?

(Figure: Market for Baseball Cards) The graph shows the demand and supply curves for David Ortiz's rookie baseball card. If baseball card collectors, who are loss-averse, originally paid $6 for Ortiz's card, the current market for Ortiz's card will be characterized by: