Deck 18: Behavioral and Experimental Economics

Question 1

Which of the following is an example of the systematic bias of being overconfident?

A) About 80% of the people on an Internet dating site rate their looks as very good or above average.
B) A person decides to save his overtime payment this week, but once he receives the payment, he spends it.
C) A person buys a product because it is listed at 80% off an inflated price.
D) People continue to play golf in a rainstorm because they don't want to waste the money they paid on greens fees.

Answer 1

A

Question 2

A consumer who is time-consistent:

A) is on time or a little early for most appointments.
B) uses nominal and real variables when making economic decisions.
C) will make the same decision in economic transactions, whether the transaction happens immediately or in the distant future.
D) will always make different decisions, depending on whether an economic transaction occurs immediately or in the distant future.

Answer 2

C

Question 3

In an experiment, subjects predicted they scored 100% on a spelling test. The actual average score was 80%. These findings reflect the behavioral bias of:

A) impulsivity.
B) ancillary bias.
C) hyperbolic discounting.
D) overconfidence.

Answer 3

D

Question 4

Which of the following defines or describes sunk cost fallacy?

A) The act of owning a good increases its value, so the owner must be paid more to give up the good than she would have been willing to pay for it in the first place.
B) It is a way to frame a bias in which people treat their current and future assets as separable, nontransferable accounts; for example, having mental savings accounts for entertainment, retirement, and other expenditures.
C) It is the mistake of allowing costs that cannot be recovered to affect decisions.
D) It is the act of placing too much emphasis on the immediate present than even the near future when making decisions.

Question 5

Suppose firms altered prices to different consumers to examine price sensitivity. This would be an example of a ____ experiment.

A) natural
B) field
C) controlled
D) lab

Question 6

Which of the following statements is (are) TRUE?
I) The outcomes of experiments are not affected by culture, a major strength of experiments.
II) Because American and European cultures are similar, experimental findings from the two locations are similar.
III) There are large differences in experimental findings between Western and non-Western cultures.

A) I
B) II
C) III
D) II and III

Question 7

The idea that people are altruistic:

A) reinforces the basic economic notion of self-interested rational behavior.
B) challenges the basic economic notion of self-interested rational behavior.
C) cannot be modeled into utility functions.
D) assumes that marginal benefits of certain activities will not be subject to diminishing returns.

Question 8

Alumni donations to universities and colleges may at first appear _____, but further examination reveals that they are motivated by _____.

A) self-interested; altruism
B) self-interested; greed
C) altruistic; self-interest
D) altruistic; the sunk cost fallacy

Question 9

Behavioral economics:

A) invalidates most of the standard economic models because it is difficult to account for irrational behavior.
B) suggests that people are even more rational and calculating than suggested by standard economic models.
C) concludes that, at least for durable goods, demand curves and supply curves both slope upward.
D) provides insights that can, in many cases, easily be accounted for by standard economic models.

Question 10

Loss aversion is a:

A) phenomenon whereby simply possessing an item increases its value.
B) situation in which a consumer prefers avoiding economic losses to acquiring economic gains.
C) bias whereby a person places too much emphasis on the immediate future, ignoring the recent past.
D) bias whereby a person places too much emphasis on the immediate future, ignoring the distant future.

Question 11

Paula saves every dollar that she earns working overtime for her retirement. This week, she has added $80 to her retirement account by working overtime. On her way home from work on Friday, Paula wins $80 in a radio contest and drives to an electronics retailer to buy an $80 computer game. Paula is displaying:

A) marketing vacillation.
B) brain oscillation.
C) mental accounting.
D) passerby fixation.

Question 12

(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:

A) 3 million cards being traded.
B) an excess supply of 3 million cards.
C) an excess demand of 3 million cards.
D) 5 million cards being traded.

Question 13

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?

A) mental accounting
B) nominal loss aversion
C) rational ignorance
D) sunk cost fallacy

Question 14

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:

A) shoveling.
B) anchoring.
C) yanking.
D) fanning.

Question 15

In a study to examine altruistic behavior, an economics professor recruits college students to participate in a game. The game consists of teams of two, with one person acting as the proposer and the other, the responder. The proposer receives a sum of money and must decide how to split the money with the responder. If the responder approves of how the money was split, each person receives the determined amount. If the responder rejects the split, neither player receives any money. This study is an example of a:

A) Pigouvian conjecture.
B) lab experiment.
C) natural experiment.
D) path-dependent experiment.

Question 16

Which of the following defines or describes mental accounting?

A) The act of owning a good increases its value, so the owner must be paid more to give up the good than she would have been willing to pay for it in the first place.
B) It is a way to frame a bias in which people treat their current and future assets as separable, nontransferable accounts; for example, having mental savings accounts for entertainment, retirement, and other expenditures.
C) It is the mistake of allowing costs that cannot be recovered to affect decisions.
D) It is the act of placing too much emphasis on the immediate present than even the near future when making decisions.

Question 17

Between 1974 and 1982, the famous RAND health insurance study randomly assigned almost 8,000 people to various health insurance plans. To examine how insurance affects the demand for medical care, some of the insurance plans had little out-of-pocket expenses, while others had significant copays and deductibles. This insurance study is an example of a:

A) lab experiment.
B) field experiment.
C) natural experiment.
D) free-rider experiment.

Question 18

Consider a game in which each of three men is given $20. All three must secretly decide whether they will contribute any part of their $20 to a trust fund. At the end of the game, each player will receive 40% of the total money contributed to the trust fund, in addition to any of the remaining $20 that he is holding. If all three players contribute $20 to the trust fund, each player will earn $_____ at the end of the game.

A) 24
B) 20
C) 8
D) 0

Question 19

In competitive markets, people who have systemic biases are likely to:

A) increase over time.
B) exit the market over time or adjust their behaviors.
C) have a comparative advantage over their rational counterparts.
D) never enter markets and participate in them.

Question 20

Carl's spending decisions are not affected by the source of his money. In this case, Carl is:

A) not acting as if money is fungible.
B) using mental accounting.
C) not using mental accounting.
D) risk-inconsistent.

Question 21

Which of the following is an example of the systematic bias of paying attention to sunk costs?

A) About 80% of the people on an Internet dating site rate their looks as very good or above average.
B) A person decides to save his overtime payment this week, but once he receives the payment, he spends it.
C) A person buys a product because it is listed at 80% off an inflated price.
D) People continue to play golf in a rainstorm because they don't want to waste the money they paid on greens fees.

Question 22

Which of the following behaviors is (are) consistent with hyperbolic discounting?
I) having unprotected sex
II) not studying enough for a final exam
III) spending too much money today
IV) using addictive substances

A) III
B) I and III
C) I, II, and IV
D) I, II, III, and IV

Question 23

Luigi drives two hours to a store to buy a Mikata circular saw. Unfortunately, the store sold its last Mikata saw just before Luigi arrived. Luigi decides to buy a lesser-quality saw so that his two-hour trip was not a waste of time. Luigi is committing the:

A) sunk cost fallacy.
B) marginal comparison fallacy.
C) ceteris paribus fallacy.
D) harmonization conundrum.

Question 24

During a down market in Boston, homeowners tried to sell at prices based on what they originally paid. As a result, the Boston real estate market:

A) had a housing shortage.
B) had an excess supply of housing.
C) was characterized by prices below equilibrium.
D) set a record for the number of housing sales in a month.

Question 25

Consider 200 people with a disease. Which of the following possibilities are identical?
I) Of the 200 people, 160 will be cured and the rest will die.
II) There is a 40% probability of death and 60% probability of cure.
III) There is a 20% probability of cure and 80% probability of death.
IV) Of the 200 people, 1 in 5 will die and the rest will be cured.

A) II and III
B) I and II
C) I and IV
D) III and IV

Question 26

What is an example of an endowment effect?

A) Riku paid $3,100 for a used car that he values at $4,000. Recently, Riku was offered $4,400 for the car but refuses to sell it.
B) Haru receives increasing marginal utility as his 401K plan increases.
C) Hana prefers a guaranteed $200 to a gamble with an expected value of $200.
D) Akari refuses to transfer money from her checking account into her savings account, even though she has paid all her monthly bills.

Question 27

Suppose a college student was given a university mug that sells for $4 in the university bookstore, and now he is unwilling to sell it even for $10. Which of the following statements best reflects the student's behavior?

A) Indifference curves are quasi-concave.
B) The more you have of something, the more you want to get rid of it.
C) The act of owning a good makes it more valuable.
D) Preferences are not always logically consistent, violating the assumption of transitivity.

Question 28

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

A) Gary Becker and Kevin Murphy
B) William Jevons and Albertus Magnus
C) Richard Cantillon and Jeremy Bentham
D) Edwin Chadwick and David Ricardo

Question 29

Which of the following is an example of the systematic bias of falling prey to framing due to anchoring?

A) About 80% of the people on an Internet dating site rate their looks as very good or above average.
B) A person decides to save his overtime payment this week, but once he receives the payment, he spends it.
C) A person buys a product because it is listed at 80% off an inflated price.
D) People continue to play golf in a rainstorm because they don't want to waste the money they paid on greens fees.

Question 30

Chris purchased a 21-speed road bike for $1,000 but found after a couple of weeks that he did not ride it as often as he thought he would, so he decided to sell it. He listed the bike on a local bike selling website and received several offers less than $1,000, but he refuses to sell for less than what he paid for it. This is an example of _____.

A) sunk cost fallacy
B) time inconsistency
C) falling prey to framing effects
D) overconfidence

Question 31

Adele doesn't like to wait to purchase items that she wants, but Agnes prefers to pay for things she wants in full. They are both planning on buying a video game system. The store is running an offer that consumers can buy the system for $400 or pay $120 per month for four months. If Adele is a hyperbolic discounter and if the discount rate for the first two months is 50% and then 2% thereafter, then Adele is better off _____ because _____.

A) paying once; the net present value of financing is greater than $400
B) paying once; the net present value of financing is less than $400
C) paying over four months; the net present value of financing is greater than $400
D) paying over four months; the net present value of financing is less than $400

Question 32

Altruism is:

A) making decisions using heuristic reasoning.
B) self-interested acts that minimize a person's objective function.
C) self-interested acts that maximize a person's objective function.
D) unselfish concern for the welfare of others.

Question 33

In an experiment, students were asked to consider the last two digits of their social security number. Next, students were asked to submit bids for a product. There was a positive correlation between the size of the bid and the last two digits of a student's social security number. This experiment highlights the behavioral economic issue of:

A) vertical thought.
B) metering.
C) fleeting.
D) anchoring.

Question 34

A person prefers $50 today to $100 a year from now but prefers $100 in six years to $50 in five years. This best describes the behavioral bias of _____.

A) sunk cost fallacy
B) hyperbolic discounting
C) falling prey to framing effect
D) overconfidence

Question 35

Which of the following is (are) shortcomings of lab experiments?
I) People in lab experiments know that they are being studied, so they may not behave normally.
II) The amount of money involved in lab experiments is small, which means the participants do not stand to gain or lose much from their choices.
III) Many people in experiments are asked to do things that they have never done before.

A) II
B) I and II
C) III
D) I, II, and III

Question 36

Researchers examined the effect of hurricanes on Florida counties to see how storms affect local labor markets. Because the path and intensity of hurricanes are random, the researchers are conducting a:

A) compensating differential study.
B) hedonic study.
C) natural experiment.
D) Euclidian experiment.

Question 37

Adele doesn't like to wait to purchase items that she wants, but Agnes prefers to pay for things she wants in full. They are both planning on buying a video game system. The store is running an offer that consumers can buy the system for $400 or pay $120 per month for four months. Either choice allows the consumer to leave the store with the video game system. Using the discount rate of 2% per month, a consumer would be better off by _____ because _____.

A) paying once; the net present value of financing is greater than $400
B) paying once; the net present value of financing is less than $400
C) paying over four months; the net present value of financing is greater than $400
D) paying over four months; the net present value of financing is less than $400

Question 38

The field that examines how human psychology affects economic decision making is:

A) behavioral economics.
B) Freudianomics.
C) psychonomics.
D) forensic economics.

Question 39

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). The net present value of the three-month installment plan at a discount rate of 1% per month is _____ which means _____ makes the consumer better off.

A) $115.85; paying one price
B) $115.85; making three monthly payments
C) $95.55; paying one price
D) $95.55; making three monthly payments

Question 40

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 _____.

A) the sunk cost fallacy
B) time inconsistency
C) the framing effect, specifically mental accounting
D) the endowment effect

Question 41

In the ultimatum game, two strangers are given $50 and must decide how to split the money between them. One player, called the proposer, makes the initial decision on how to split the money. The second player, called the responder, either accepts or rejects the proposer's offer. If the responder accepts the offer, both players are paid according to the proposer's offer. If the responder rejects the offer, neither player receives any money. Suppose the proposer and responder act in a rationally self-interested manner. The proposer would offer $____ to the responder and the responder would ____ the offer.

A) 1; accept
B) 1; reject
C) 49; accept
D) 49; reject

Question 42

Which scenario represents time inconsistency?

A) A person prefers $80 today to $100 one year from now but prefers $100 in six years to $80 in five years.
B) You prefer receiving $2 on January 1^st of this year to receiving $1 on January 2^nd of this year, and you prefer $2 on January 1^st of next year to $1 on January 2^nd of next year.
C) A person prefers $100 in one year to $80 today but prefers $100 in six years to $80 in five years.
D) You value $1 today more than $1 tomorrow.

Question 43

The theory that accounts for "rational addiction" reveals that:

A) consumers who use drugs are exhibiting irrational decision making.
B) addiction is most common among those earning six figure incomes.
C) consumers consider both the lifetime costs and benefits (utility) of addiction.
D) addiction cannot be classified as rational.

Question 44

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.

A) a negative
B) a positive
C) zero
D) a random

Question 45

(Figure: Market for Homes) Suppose that people selling their homes fall prey to the sunk cost fallacy, refusing to sell at the going market price to avoid a nominal loss during an economic downturn. What price might these homeowners try to sell their homes for?

A) $120,000
B) $150,000
C) $100,000
D) any price less than $120,000

Question 46

Which of the following is an example of the systematic bias of relying on generosity and selflessness?

A) About 80% of the people on an Internet dating site rate their looks as very good or above average.
B) A person decides to save his overtime payment this week, but once he receives the payment, he spends it.
C) A person buys a product because it is listed at 80% off an inflated price.
D) A person returns the shopping cart to the front of the store after loading the car with groceries.

Question 47

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) weekly memberships at inflated prices.
B) annual or multiyear memberships.
C) daily memberships at discounted prices.
D) a monthly plan at $100 and a yearly plan at $1,500.

Question 48

Every Monday, two college students, Kaito and Himari, make plans to study on the weekend. If Kaito is time-consistent and Himari is time-inconsistent, then:

A) Kaito will study over the weekend and Himari will not.
B) Himari will study over the weekend and Kaito will not.
C) both Kaito and Himari will study over the weekend.
D) neither Kaito nor Himari will study over the weekend.

Question 49

Eli purchased stock in XYC, Inc. at $31 a share, but the stock is now worth only $19 a share. Eli believes that XYC's stock will underperform the average stock market return going forward. However, Eli won't sell his stock until it reaches at least $31. Eli's decision making is:

A) biased by sunk costs.
B) economically rational.
C) biased by self-control problems.
D) the result of hyperbolic discounting.

Question 50

Which of the following are examples of altruism?
I) saving for your child's education
II) volunteering at a community health center
III) donating money to Doctors Without Borders, a nongovernmental organization that provides urgent medical care to people around the world

A) I and III
B) I, II, and III
C) III
D) II

Question 51

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.

A) I
B) II and III
C) I, II, and III
D) II

Question 52

Which of the following is an example of an advantage that natural and field experiments have over a lab experiment?

A) The participants do not know that they are being studied.
B) The participants know they are being studied.
C) There are guaranteed replicable results.
D) All surrounding factors are easy to control for.

Question 53

(Figure: Market for Collectible Toys) Many people purchase toys with the notion that they will appreciate in value over time. Assume the following graph represents the market for collectible toys with initial equilibrium at point A. Sellers will agree to sell at a price of $_____ if the market for collectible toys declines suddenly to D₂ and they are subject to sunk cost fallacy.

A) 2,500
B) 1,750
C) 1,125
D) 250

Question 54

Standard economic models assume that people make decisions based on _____, not _____.

A) altruistic motives; self-interest
B) real variables (i.e., variables adjusted for inflation); nominal variables
C) endowment effects; framing
D) framing; anchoring

Question 55

What is the endowment effect?

A) Children who receive a large inheritance are less likely to work.
B) The more you have of something, the more you want to get rid of it.
C) The fact of owning a good makes it more valuable.
D) Colleges with large endowments give student aid more generously.

Question 56

Which of the following statements is (are) consistent with rational addiction?
I) Most addicts are myopic-they don't consider the future when making decisions.
II) Addicts use hyperbolic discounting, placing too much emphasis on the immediate future.
III) Consumers of addictive substances consider the lifetime benefits of consumption as well as the lifetime costs.

A) I
B) II
C) I and II
D) III

Question 57

In the ultimatum game, two strangers are given $50 and must decide how to split the money between them. One player, called the proposer, makes the initial decision on how to split the money. The second player, called the responder, either accepts or rejects the proposer's offer. If the responder accepts the offer, both players are paid according to the proposer's offer. If the responder rejects the offer, neither player receives any money. Suppose the proposer acts in an altruistic manner. The proposer would offer ____ to the responder and the responder would ____ the offer.

A) $1; accept
B) more than $1; accept
C) more than $1; reject
D) $1; reject

Question 58

What is hyperbolic discounting?

A) the tendency to place much greater importance on the immediate present than even the near future when making economic decisions
B) the use of a positive discount rate that exceeds the real interest rate
C) the valuing of future benefits at an exponentially higher rate than current benefits
D) the ability of people to psychologically discount losses more than gains

Question 59

The sunk cost fallacy is the:

A) principle that sunk costs matter more and more with the passage of time.
B) mistaken belief that one should consider sunk costs when making decisions.
C) idea that people ignore experience when making future decisions.
D) correct belief that past investments can be recovered from future actions.

Question 60

A person is more likely to drive across town to save $5 on the purchase of a $10 calculator than drive across town to save $5 on the purchase of a $100 coat. This best describes the behavioral bias of _____.

A) sunk cost fallacy
B) hyperbolic discounting
C) falling prey to framing effects
D) overconfidence

Question 61

Suppose a person prefers $100 today to $150 one year from now but prefers $150 in seven years to $100 in six years. This is an example of ____.

A) sunk cost fallacy
B) time inconsistency
C) falling prey to framing effects
D) overconfidence

Question 62

People who fail to take inflation into account when calculating losses may be:

A) unbiased loss-averse.
B) using real variables to make decisions.
C) loss-averse.
D) acutely loss-averse.

Question 63

Which of the following defines or describes having self-control problems and using hyperbolic discounting?

A) The act of owning a good increases its value, so the owner must be paid more to give up the good than she would have been willing to pay for it in the first place.
B) It is a way to frame a bias in which people treat their current and future assets as separable, nontransferable accounts; for example, having mental savings accounts for entertainment, retirement, and other expenditures.
C) It is the mistake of allowing costs that cannot be recovered to affect decisions.
D) It is the act of placing too much emphasis on the immediate present than even the near future when making decisions.

Question 64

Suppose a baseball team offers a lottery for the random chance to buy season tickets at a deep discount. The fans who paid full price for season tickets are more likely to attend games than the fans who bought discounted season tickets. This best describes the behavioral bias of _____.

A) sunk cost fallacy
B) hyperbolic discounting
C) falling prey to framing effect
D) overconfidence

Question 65

Which of the following is (are) forms of framing bias?
I) loss aversion
II) overconfidence
III) endowment effect
IV) anchoring

A) I, III, and IV
B) II
C) III and IV
D) I and II

Question 66

Mia recently bought a kayak for $700 that she values at $1,000. Mia's friend, Sofia, offered to buy the kayak from her for $1,000, but Mia turned her down. Mia is most likely encountering _____.

A) sunk cost fallacy
B) time inconsistency
C) falling prey to framing effects, particularly anchoring
D) the endowment effect

Question 67

Consider a game in which each of three men is given $20. All three must secretly decide whether they will contribute any part of their $20 to a trust fund. At the end of the game, each player will receive 40% of the total money contributed to the trust fund, in addition to any of the remaining $20 that he is holding. If the first two players contribute $20 to the trust fund, the third player should contribute $_____ to maximize his individual earnings at the end of the game.

A) 24
B) 20
C) 8
D) 0

Question 68

What is econometrics?

A) a bias in which people overemphasize small risks while ignoring large risks
B) the use of statistical and analytical techniques to test economic theory
C) the use of mathematical theory to speculate on cause and effect
D) the branch of economics that studies psychological biases

Question 69

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

A) a natural
B) a field
C) an artificial
D) a lab

Question 70

Yesterday, Melinda bought a ticket for today's show. She has a migraine 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?

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

Question 71

An economist sent out numerous résumés to businesses; all were identical except that some of the résumés had "African American-sounding" names and others "white-sounding" names. The economist was interested to see whether a person's name affected the callback rate. This study is an example of a:

A) field experiment.
B) contrived experiment.
C) natural experiment.
D) clinical trial.

Question 72

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). The net present value of the three-month installment plan, using hyperbolic discounting is ____ (assume that the monthly discount rate of 1% is discounted an additional 40% in this hyperbolic discounting).

A) $115.85
B) $99
C) $95.55
D) $39

Question 73

Which of the following is an example of the systematic bias of having self-control problems and using hyperbolic discounting?

A) About 80% of the people on an Internet dating site rate their looks as very good or above average.
B) A person decides to save his overtime payment this week, but once he receives the payment, he spends it.
C) A person buys a product because it is listed at 80% off an inflated price.
D) People continue to play golf in a rainstorm because they don't want to waste the money they paid on greens fees.

Question 74

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

A) field experiment.
B) permit study.
C) natural experiment.
D) Coase experiment.

Question 75

Consider a game in which each of three men is given $20. All three must secretly decide whether they will contribute any part of their $20 to a trust fund. At the end of the game, each player will receive 40% of the total money contributed to the trust fund, in addition to any of the remaining $20 that he is holding. If all three players act altruistically, each player will earn $_____ at the end of the game.

A) 24
B) 20
C) 8
D) 0

Question 76

Jabari has had his car for 10 years and put a lot of money into repairs. His mechanic has broken the news to him that he needs a new engine, a very expensive repair, and suggests that Jabari sell the car. Jabari argues that he has put too much money into the car to sell it now and that the mechanic should replace the engine. What systematic bias is Jabari exhibiting?

A) the sunk cost fallacy
B) time inconsistency
C) the framing effect, specifically mental accounting
D) the endowment effect

Question 77

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. The type of behavioral bias will be captured by this question is _____.

A) sunk cost fallacy
B) time inconsistency
C) falling prey to framing effects, particularly anchoring
D) overconfidence

Question 78

On Monday, you want to start your exercise program on Saturday. When Saturday arrives, you spend your time watching college football and do not exercise. This behavior is an example of:

A) negative discounting.
B) egocentrism.
C) time inconsistency.
D) neo-foresight.

Question 79

Which of the following defines or describes the endowment effect?

A) The act of owning a good increases its value, so the owner must be paid more to give up the good than she would have been willing to pay for it in the first place.
B) It is a way to frame a bias in which people treat their current and future assets as separable, nontransferable accounts; for example, having mental savings accounts for entertainment, retirement, and other expenditures.
C) It is the mistake of allowing costs that cannot be recovered to affect decisions.
D) It is the act of placing too much emphasis on the immediate present than even the near future when making decisions.

Question 80

The rational addiction model of Gary Becker and Kevin Murphy contends that:

A) addicts are irrational and do not consider the full costs of using addictive substances.
B) consumers weigh the benefits of using addictive substances along with their full costs.
C) standard economic models are not equipped to address socially destructive behavior.
D) prices play no role in the decisions to use addictive substances.