Question 1

Payment decoupling is best described as:

Accepted Answer

A)  The idea that losses hurt more than gains. 
B)  The idea that people suffer from the cognitive costs of choosing which bundle to purchase. 
C)  The idea that I take sunk costs into account when making consumption decisions. 
D)  The idea that the payment and consumption are separated by time and do not seem as closely linked. 
A)  The idea that losses hurt more than gains. 
B)  The idea that people suffer from the cognitive costs of choosing which bundle to purchase. 
C)  The idea that I take sunk costs into account when making consumption decisions. 
D)  The idea that the payment and consumption are separated by time and do not seem as closely linked.

Question 2

Firm $\mathrm{A}$ and Firm B produce a good called $\mathrm{x}$ and both firms have a production function given by $(x)=\sqrt{x}$. It costs each firm $\$ 0.25$ to produce each unit of $\mathrm{x}$ and both firms sell a unit of $\mathrm{x}$ for $\$ 2$. However, to purchase the equipment needed to produce $x$, Firm A spent $\$ 2500$ and Firm B spent $\$ 1500$. The equipment each firm purchased is identical. How many units of $x$ should each firm produce?

Accepted Answer

Both firms should produce 16 u

Question 3

I have been saving my money to buy a new car. I know that I want to buy a Prius and that it will cost about $\$ 22,000$. My refrigerator has been malfunctioning too, so any left over money will go towards repairs. My utility function can be written as $U(x, p, \varepsilon)=x+z(p, \varepsilon)$, where $\mathrm{x}=1$ if $\mathrm{I}$ buy the Prius and 0 otherwise, $\mathrm{p}$ is the price of the Prius and $\varepsilon$ is my reference point. Which of the following functions for $z(p, \varepsilon)$ best describes the scenario above?

Accepted Answer

A)  $z(p, \varepsilon)=(22,000-p)$. 
B)  $z(p, \varepsilon)=|p-22,000|$. 
C)  $z(p, e)=|x-p|$. 
D)  $z(p, e)=(x-p)^{2}$. 
A)  $z(p, \varepsilon)=(22,000-p)$. 
B)  $z(p, \varepsilon)=|p-22,000|$. 
C)  $z(p, e)=|x-p|$. 
D)  $z(p, e)=(x-p)^{2}$.

Question 4

Acquisition utility refers to the utility I receive from consuming a good and transaction utility is the utility I derive from feeling like I got a good deal.

Accepted Answer

A) True 
 B)False

Question 5

"When an individual uses a comparison to aid in making a decision, we often call this a:

Accepted Answer

A)  Sunk cost. 
B)  Fixed cost. 
C)  Reference point. 
D)  Decoupling. 
A)  Sunk cost. 
B)  Fixed cost. 
C)  Reference point. 
D)  Decoupling.

Question 6

An individual who is risk-neutral is willing to pay a flat-rate to avoid the uncertainty of a linear-pricing plan.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is not a procedural explanation for the flat rate bias?

Accepted Answer

A)  Loss aversion. 
B)  Payment Decoupling. 
C)  Self-Control. 
D)  Cognitive Costs. 
A)  Loss aversion. 
B)  Payment Decoupling. 
C)  Self-Control. 
D)  Cognitive Costs.

Question 8

The sunk cost fallacy occurs when:

Accepted Answer

A)  Losses hurt more than gains. 
B)  Gains or losses are compared to some reference point. 
C)  My utility function contains a bliss point. 
D)  I attempt to recover past costs by continuing an activity when there is a negative return. 
A)  Losses hurt more than gains. 
B)  Gains or losses are compared to some reference point. 
C)  My utility function contains a bliss point. 
D)  I attempt to recover past costs by continuing an activity when there is a negative return.

Question 9

There are two local bars and I always buy the same beer at both bars. At the first bar, the music is bad and the bartender is rude. At the second bar, the music is wonderful, there are lots of friendly people, and I always enjoy myself more than when I go to the first bar. An example of context adding value to a good is:

Accepted Answer

A)  I pay a dollar more for the beer at the second bar than I pay at the first bar. 
B)  I pay $\$ 10$ for a beer at the second bar. 
C)  I never go to the first bar. 
D)  I stop talking to the bartender at the first bar. 
A)  I pay a dollar more for the beer at the second bar than I pay at the first bar. 
B)  I pay $\$ 10$ for a beer at the second bar. 
C)  I never go to the first bar. 
D)  I stop talking to the bartender at the first bar.

Question 10

Transaction Utility describes the scenario in which a consumer spends too much on a good.

Accepted Answer

A) True 
 B)False

Question 11

Consider the following utility function, where $\mathrm{x}$ is the consumer good and $\mathrm{p}$ is the price of $\mathrm{x}$. $U(x, p)=\sqrt{x}+(p-10)$ is an example of utility function for an individual who exhibits which type of transaction utility?

Accepted Answer

A)  Sunk cost fallacy. 
B)  Flat-rate bias. 
C)  Reference-Dependent Preferences. 
A)  Sunk cost fallacy. 
B)  Flat-rate bias. 
C)  Reference-Dependent Preferences.

Payment decoupling is best described as:

Acquisition utility refers to the utility I receive from consuming a good and transaction utility is the utility I derive from feeling like I got a good deal.

"When an individual uses a comparison to aid in making a decision, we often call this a:

An individual who is risk-neutral is willing to pay a flat-rate to avoid the uncertainty of a linear-pricing plan.

Which of the following is not a procedural explanation for the flat rate bias?

The sunk cost fallacy occurs when:

Transaction Utility describes the scenario in which a consumer spends too much on a good.

Consider the following utility function, where $\mathrm{x}$ is the consumer good and $\mathrm{p}$ is the price of $\mathrm{x}$ . $U(x, p)=\sqrt{x}+(p-10)$ is an example of utility function for an individual who exhibits which type of transaction utility?

Rationality, Irrationality, and Rationalization

Mental Accounting

Status Quo Bias and Default Options

The Winners Curse and Auction Behavior

Bracketing Decisions

Representativeness and Availability

Confirmation and Overconfidence

Decision Under Risk and Uncertainty

Prospect Theory and Decision Under Risk or Uncertainty

Disagreeing With Ourselves: Projection and Hindsight Biases

Naïve Procrastination

Committing and Uncommitting

Selfishness and Altruism

Fairness and Psychological Games

Trust and Reciprocity

Filters

Exam 2: Transaction Utility and Consumer Pricing

Payment decoupling is best described as:

Acquisition utility refers to the utility I receive from consuming a good and transaction utility is the utility I derive from feeling like I got a good deal.

"When an individual uses a comparison to aid in making a decision, we often call this a:

An individual who is risk-neutral is willing to pay a flat-rate to avoid the uncertainty of a linear-pricing plan.

Which of the following is not a procedural explanation for the flat rate bias?

The sunk cost fallacy occurs when:

Transaction Utility describes the scenario in which a consumer spends too much on a good.

Consider the following utility function, where x\mathrm{x}x is the consumer good and p\mathrm{p}p is the price of x\mathrm{x}x . U(x,p)=x+(p−10)U(x, p)=\sqrt{x}+(p-10)U(x,p)=x​+(p−10) is an example of utility function for an individual who exhibits which type of transaction utility?

Rationality, Irrationality, and Rationalization

Mental Accounting

Status Quo Bias and Default Options

The Winners Curse and Auction Behavior

Bracketing Decisions

Representativeness and Availability

Confirmation and Overconfidence

Decision Under Risk and Uncertainty

Prospect Theory and Decision Under Risk or Uncertainty

Disagreeing With Ourselves: Projection and Hindsight Biases

Naïve Procrastination

Committing and Uncommitting

Selfishness and Altruism

Fairness and Psychological Games

Trust and Reciprocity

Filters

Consider the following utility function, where $\mathrm{x}$ is the consumer good and $\mathrm{p}$ is the price of $\mathrm{x}$ . $U(x, p)=\sqrt{x}+(p-10)$ is an example of utility function for an individual who exhibits which type of transaction utility?