Question 1

Satisficing is the decision-making strategy that:

Accepted Answer

A) aims for adequate results when achieving optimal results may necessitate an excessive expenditure of resources. 
B) aims for optimal results in situations where the decision maker has perfect information. 
C) attempts to minimize the harm from losses rather than maximize the pleasure from gains. 
D) focuses on how one's consumption compares to the consumption of others, rather than on absolute consumption. 
A) aims for adequate results when achieving optimal results may necessitate an excessive expenditure of resources. 
B) aims for optimal results in situations where the decision maker has perfect information. 
C) attempts to minimize the harm from losses rather than maximize the pleasure from gains. 
D) focuses on how one's consumption compares to the consumption of others, rather than on absolute consumption.

Question 2

Traditional economic models ________ the fact that people sometimes regret making decisions with perfectly predictable consequences.

Accepted Answer

A) account for 
B) can easily explain 
C) cannot explain 
D) are supported by 
A) account for 
B) can easily explain 
C) cannot explain 
D) are supported by

Question 3

Suppose that only 2 percent of all people are geniuses. If an IQ test indicates that Albert is a genius, but the test is only accurate 90 percent of the time, then the probability that Albert really is a genius is roughly:

Accepted Answer

A) 18 percent. 
B) 2 percent. 
C) 10 percent. 
D) 16 percent 
A) 18 percent. 
B) 2 percent. 
C) 10 percent. 
D) 16 percent

Question 4

When Tversky and Khaneman asked one group of people to imagine that, having previously purchased a ticket for $10, they arrive at the theater to discover they have lost their ticket and a second group to imagine that they arrive just before the performance to buy a ticket and find they have lost $10 from their wallets, they found that people in the lost ticket group were more likely to say they would ________ the performance, even though the rational choice model predicts that people in ________.

Accepted Answer

A) still attend; the lost $10 group should be more likely to say they would still attend 
B) still attend; both groups should be equally likely to say they would still attend 
C) no longer attend; the lost $10 group should be more likely to say they would no longer attend 
D) no longer attend; both groups should be equally likely to say they would still attend 
A) still attend; the lost $10 group should be more likely to say they would still attend 
B) still attend; both groups should be equally likely to say they would still attend 
C) no longer attend; the lost $10 group should be more likely to say they would no longer attend 
D) no longer attend; both groups should be equally likely to say they would still attend

Question 5

According to the availability heuristic, the more easily we can recall examples of an event:

Accepted Answer

A) the less likely we judge the event to be. 
B) the more likely we judge the event to be. 
C) the more we like the event. 
D) the less we like the event. 
A) the less likely we judge the event to be. 
B) the more likely we judge the event to be. 
C) the more we like the event. 
D) the less we like the event.

Question 6

According to the representative heuristic, people's belief about the likelihood that something belongs to a given category ________ the extent to which it shares characteristics with the stereotypical members of that category.

Accepted Answer

A) will only rarely be influenced by 
B) is unaffected by 
C) decreases with 
D) increases with 
A) will only rarely be influenced by 
B) is unaffected by 
C) decreases with 
D) increases with

Question 7

Suppose Paul just saw a car accident while driving home from work. According to the availability heuristic, this is likely to make Paul think that:

Accepted Answer

A) people only get into car accidents if they are bad drivers. 
B) he is extremely lucky. 
C) car accidents are rare. 
D) car accidents are more common than they really are. 
A) people only get into car accidents if they are bad drivers. 
B) he is extremely lucky. 
C) car accidents are rare. 
D) car accidents are more common than they really are.

Question 8

________ is the phenomenon that unusual events are likely to be followed by more nearly normal ones.

Accepted Answer

A) The present aim standard of rationality 
B) Loss aversion 
C) Anchoring and adjustment 
D) Regression to the mean 
A) The present aim standard of rationality 
B) Loss aversion 
C) Anchoring and adjustment 
D) Regression to the mean

Question 9

Suppose Vincent is willing to pay $350 to buy a new bike. Loss aversion implies that if Vincent had just bought the bike, you would:

Accepted Answer

A) have to pay him less than $350 to part with it. 
B) have to pay him more than $350 to part with it. 
C) have to pay him exactly $350 to part with it. 
D) not be able to get him to part with it for any amount of money. 
A) have to pay him less than $350 to part with it. 
B) have to pay him more than $350 to part with it. 
C) have to pay him exactly $350 to part with it. 
D) not be able to get him to part with it for any amount of money.

Question 10

According to the ________, if Carla has many of the characteristics of a stereotypical basketball player (for example, she is tall), then people will be more likely to assume she plays basketball.

Accepted Answer

A) adaptive rationality standard 
B) representative heuristic 
C) availability heuristic 
D) Weber-Fechner law 
A) adaptive rationality standard 
B) representative heuristic 
C) availability heuristic 
D) Weber-Fechner law

Question 11

In laboratory experiments, the behavior of players in the ultimatum game suggests that people:

Accepted Answer

A) act in their own narrow self-interest. 
B) have impulse control problems. 
C) are deceitful. 
D) value fairness. 
A) act in their own narrow self-interest. 
B) have impulse control problems. 
C) are deceitful. 
D) value fairness.

Question 12

If Doug has just watched a television show in which the main character is killed in an airplane crash, then the availability heuristic predicts that he will:

Accepted Answer

A) more accurately assess the pros and cons of air travel. 
B) never watch that television show again. 
C) overestimate the dangers of air travel. 
D) underestimate the dangers of air travel. 
A) more accurately assess the pros and cons of air travel. 
B) never watch that television show again. 
C) overestimate the dangers of air travel. 
D) underestimate the dangers of air travel.

Question 13

Suppose Christina just saw an advertisement on television for an antidepressant, but it has been a long time since James saw one. According to the availability heuristic:

Accepted Answer

A) Christina is likely to think that depression is more common than James. 
B) James is likely to think that depression is more common than Christina. 
C) Christina and James are likely to think that depression is equally common. 
D) Christina and James are equally likely to think that people recover from depression. 
A) Christina is likely to think that depression is more common than James. 
B) James is likely to think that depression is more common than Christina. 
C) Christina and James are likely to think that depression is equally common. 
D) Christina and James are equally likely to think that people recover from depression.

Question 14

Suppose that John has many of the same characteristics as the stereotypical mathematician. According to the representative heuristic, this will tend to make people think that:

Accepted Answer

A) John is good at math. 
B) John is bad at math. 
C) many people are good at math. 
D) many people are bad at math. 
A) John is good at math. 
B) John is bad at math. 
C) many people are good at math. 
D) many people are bad at math.

Question 15

An estimation technique that begins with an initial approximation, which is then modified in accordance with additional information, is known as:

Accepted Answer

A) status quo bias. 
B) regression to the mean. 
C) anchoring and adjustment. 
D) the representative heuristic. 
A) status quo bias. 
B) regression to the mean. 
C) anchoring and adjustment. 
D) the representative heuristic.

Question 16

Studies have shown that when people are asked to imagine a hypothetical illness, the amount of money they say they would be willing to pay to avoid getting the illness is ________ they would be willing to pay for a cure if they were already sick.

Accepted Answer

A) unrelated to the amount 
B) the same as 
C) more than 
D) less than 
A) unrelated to the amount 
B) the same as 
C) more than 
D) less than

Question 17

According to the adaptive rationality standard, one reason people might rationally choose to have preferences that are not narrowly self-interested is that:

Accepted Answer

A) even rational people sometimes make irrational choices. 
B) doing so could help them solve commitment problems. 
C) they do not know how to act in their own self-interest. 
D) they have no other choice. 
A) even rational people sometimes make irrational choices. 
B) doing so could help them solve commitment problems. 
C) they do not know how to act in their own self-interest. 
D) they have no other choice.

Question 18

________ is the relationship according to which the perceived change in any stimulus varies according to the size of the change measured as a proportion of the original stimulus.

Accepted Answer

A) The adaptive rationality standard 
B) The Weber-Fechner law 
C) The representative heuristic 
D) Regression to the mean 
A) The adaptive rationality standard 
B) The Weber-Fechner law 
C) The representative heuristic 
D) Regression to the mean

Question 19

The ________ is the rule of thumb according to which people's belief about the likelihood that something belongs to a given category increases with the extent to which it shares characteristics with the stereotypical members of that category.

Accepted Answer

A) representative heuristic 
B) adaptive rationality standard 
C) availability heuristic 
D) Weber-Fechner law 
A) representative heuristic 
B) adaptive rationality standard 
C) availability heuristic 
D) Weber-Fechner law

Question 20

According to the representative heuristic, people will be more likely to assume that Wendy is a lawyer if:

Accepted Answer

A) they plan to apply to law school at some point in the future. 
B) there are few other lawyers living in the same geographic region. 
C) Wendy vehemently denies being a lawyer. 
D) Wendy has many of the characteristics of a stereotypical lawyer. 
A) they plan to apply to law school at some point in the future. 
B) there are few other lawyers living in the same geographic region. 
C) Wendy vehemently denies being a lawyer. 
D) Wendy has many of the characteristics of a stereotypical lawyer.

Exam 10: An Introduction to Behavioral Economics

Satisficing is the decision-making strategy that:

Traditional economic models ________ the fact that people sometimes regret making decisions with perfectly predictable consequences.

Suppose that only 2 percent of all people are geniuses. If an IQ test indicates that Albert is a genius, but the test is only accurate 90 percent of the time, then the probability that Albert really is a genius is roughly:

According to the availability heuristic, the more easily we can recall examples of an event:

According to the representative heuristic, people's belief about the likelihood that something belongs to a given category ________ the extent to which it shares characteristics with the stereotypical members of that category.

Suppose Paul just saw a car accident while driving home from work. According to the availability heuristic, this is likely to make Paul think that:

________ is the phenomenon that unusual events are likely to be followed by more nearly normal ones.

Suppose Vincent is willing to pay $350 to buy a new bike. Loss aversion implies that if Vincent had just bought the bike, you would:

According to the ________, if Carla has many of the characteristics of a stereotypical basketball player (for example, she is tall), then people will be more likely to assume she plays basketball.

In laboratory experiments, the behavior of players in the ultimatum game suggests that people:

If Doug has just watched a television show in which the main character is killed in an airplane crash, then the availability heuristic predicts that he will:

Suppose Christina just saw an advertisement on television for an antidepressant, but it has been a long time since James saw one. According to the availability heuristic:

Suppose that John has many of the same characteristics as the stereotypical mathematician. According to the representative heuristic, this will tend to make people think that:

An estimation technique that begins with an initial approximation, which is then modified in accordance with additional information, is known as:

Studies have shown that when people are asked to imagine a hypothetical illness, the amount of money they say they would be willing to pay to avoid getting the illness is ________ they would be willing to pay for a cure if they were already sick.

According to the adaptive rationality standard, one reason people might rationally choose to have preferences that are not narrowly self-interested is that:

________ is the relationship according to which the perceived change in any stimulus varies according to the size of the change measured as a proportion of the original stimulus.

The ________ is the rule of thumb according to which people's belief about the likelihood that something belongs to a given category increases with the extent to which it shares characteristics with the stereotypical members of that category.

According to the representative heuristic, people will be more likely to assume that Wendy is a lawyer if:

Thinking Like an Economist

Comparative Advantage

Supply and Demand

Elasticity

Demand

Perfectly Competitive Supply

Efficiency, Exchange, and the Invisible Hand in Action

Monopoly, Oligopoly, and Monopolistic Competition

Games and Strategic Behavior

Externalities, Property Rights, and the Environment

The Economics of Information

Labor Markets, Poverty, and Income Distribution

Public Goods and Tax Policy

International Trade and Trade Policy

Macroeconomics: The Birds Eye View of the Economy

Measuring Economic Activity: GDP and Unemployment

Measuring the Price Level and Inflation

Economic Growth, Productivity, and Living Standards

The Labor Market: Workers, Wages, and Unemployment

Saving and Capital Formation

Money Prices and the Federal Reserve

Financial Markets and International Capital Flows

Short-Term Economic Fluctuations: An Introduction

Spending and Output in the Short Run

Stabilizing the Economy: The Role of the Fed

Aggregate Demand, Aggregate Supply, and Inflation

Exchange Rates and the Open Economy

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