Deck 17: Behavioral Economics and Risk Taking

Question 1

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.

Answer 1

Jacqueline buys a lottery ticket.

Question 2

Behavioral economics seeks to dethrone ________ and replace him with something "more human."

A) Homo rationalimus
B) Homo economicus
C) Homo macrus
D) Homo sapiens
E) Homo stevejobsimus

Answer 2

Homo economicus

Question 3

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 demandcurvius
D) Homo economicus
E) Homo elasticious

Answer 3

Homo economicus

Question 4

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) behavioral
D) labor
E) entrepreneurial

Question 5

Behavioral economists draw on insights from ________ to explore how people behave in economic settings.

A) experimental psychology
B) experimental biology
C) evolutionary biology
D) astrology
E) theoretical physics

Question 6

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."
Source: "The Price in Economics 2002: Press Release," Nobelprize.org,October 12,2012,www.nobelprize.org/nobel_ prizes/economics/laureates/2002/press.html.
Based on this information,which academic field would Daniel Kahneman most likely identify with?

A) economics
B) industrial-organizational sociology
C) evolutionary biology
D) English
E) behavioral economics

Question 7

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.

Question 8

In 2011,Edward Cartwright,a behavioral economist,gave credit to the Nobel Prize-winning 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 person's 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."
Source: "A Behavior Model of Rational Choice," Quarterly Journal of Economics (1955): 104.
This statement by Simon can be best described as a call to

A) 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.

Question 9

Whenever consumers make decisions without perfect information,the decision reflects

A) perfect rationality.
B) perfect irrationality.
C) bounded rationality.
D) unbounded rationality.
E) confounded rationality.

Question 10

Behavioral economics studies how ________ influences the decision-making process.

A) the weather pattern
B) rational economic action
C) experimental psychology
D) the financial sector
E) macroeconomics

Question 11

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.

Question 12

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.

Question 13

The hypothetical species Homo economicus is acutely aware of opportunities in the environment and

A) 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.

Question 14

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 as

A) Homo consumus.
B) Homo microcus.
C) Homo demandcurvius.
D) Homo economicus.
E) Homo elasticious.

Question 15

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.

Question 16

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.

Question 17

The traditional economic model conceptualizes the economy as made up of infinitely calculating,unemotional maximizers that have been called

A) Homo consumus.
B) Homo economicus.
C) Homo microcus.
D) Homo demandcurvius.
E) Homo elasticious.

Question 18

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.

Question 19

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.

Question 20

________ is the field of economics that studies how experimental psychology influences the decision-making process.

A) Public finance
B) Psychology
C) Behavioral economics
D) Sociology
E) Macroeconomics

Question 21

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 exactly one $100 bill.Under each of the other three buckets is exactly one $5 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 up two of the remaining three buckets to reveal a $5 bill under each of them.At this point,only two buckets remain uncovered: the bucket that the contestant originally chose and the bucket that was 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 the only other bucket remaining.
In the context of behavioral economics,the belief that outcomes that have not occurred in the recent past are more likely to occur soon,and that recent outcomes are unlikely to be repeated in the near future is best referred to as the ________ fallacy.

A) gambler's
B) base-rate
C) existential
D) hot-hand
E) broken-window

Question 22

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) casino's
B) dealer's
C) gambler's
D) masked-man
E) hot-hand

Question 23

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 exactly one $100 bill.Under each of the other three buckets is exactly one $5 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 up two of the remaining three buckets to reveal a $5 bill under each of them.At this point,only two buckets remain uncovered: the bucket that the contestant originally chose and the bucket that was 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 the only other bucket remaining.
If the contestant changes buckets from the original bucket to the other bucket remaining,what is the expected value of the game?

A) $5.00
B) $95.00
C) $62.50
D) $28.75
E) $76.25

Question 24

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 exactly one $100 bill.Under each of the other three buckets is exactly one $5 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 up two of the remaining three buckets to reveal a $5 bill under each of them.At this point,only two buckets remain uncovered: the bucket that the contestant originally chose and the bucket that was 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 the only other bucket remaining.
If the contestant changes buckets from the original bucket to one of the other buckets remaining,what is the expected value of the game?

A) $32.50
B) $40.00
C) $43.75
D) $66.25
E) $100.00

Question 25

Consider the following scenario when answering the following questions:
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 receives 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.After the contestant makes a choice,the host lifts up one of the remaining two buckets to reveal a one-ounce gold bar under it.At this point,only two buckets remain uncovered: the bucket that the contestant originally chose and the bucket that was 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 the only other bucket remaining.
If the contestant changes buckets from the original bucket to the other bucket remaining,what is the probability that the contestant will win the one-ounce gold bar?

A) 1/8
B) 1/3
C) 1/2
D) 2/3
E) 5/8

Question 26

In the 1990s,researchers Clotfelter,Cook,and Terrel analyzed data from a particular game that was offered in both the Maryland and New Jersey state lotteries.In the game,participants place a bet and then guess a three-digit number.After all bets have been placed,a three-digit number is randomly drawn by state lottery representatives.If a bettor correctly guesses the number drawn,he or she wins a large prize.Consistent with the ________ fallacy,the researchers found clear evidence that lottery players bet less often on a number that had won in the recent past.

A) hot-hand
B) gambler's
C) casino's
D) genetic
E) naturalistic

Question 27

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 gambler's fallacy?

A) The probability of getting heads on the next toss is 4/5.
B) The probability of getting heads on the next toss is 5/6.
C) The probability of getting heads on the next toss is 6/10.
D) The probability of getting heads on the next toss is 9/10.
E) The probability of getting heads on the next toss is 1/2 .

Question 28

Suppose a student tosses a fair coin consecutively 10 times and gets tails each time.If the student concludes that the next toss will be heads because heads "is due," the student has committed the ________ fallacy.

A) hot-hand
B) casino's
C) gambler's
D) dealer's
E) NBA

Question 29

Consider the following scenario when answering the following questions:
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 receives 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.After the contestant makes a choice,the host lifts up one of the remaining two buckets to reveal a one-ounce gold bar under it.At this point,only two buckets remain uncovered: the bucket that the contestant originally chose and the bucket that was 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 the only other bucket remaining.
If the contestant does not change buckets and stays with the original bucket chosen,what is the probability that the contestant will win the one-ounce gold bar?

A) 1/8
B) 1/3
C) 1/2
D) 2/3
E) 5/8

Question 30

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 exactly one $100 bill.Under each of the other three buckets is exactly one $5 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 up two of the remaining three buckets to reveal a $5 bill under each of them.At this point,only two buckets remain uncovered: the bucket that the contestant originally chose and the bucket that was 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 the only other bucket remaining.
If the contestant changes buckets from the original bucket to one of the other buckets remaining,the expected value of the game rises from

A) $10.00 to $32.50.
B) $32.50 to $43.75.
C) $43.75 to $66.25.
D) $66.25 to $67.50.
E) $100.00 to $167.50.

Question 31

Consider the following scenario when answering the following questions:
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 receives 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.After the contestant makes a choice,the host lifts up one of the remaining two buckets to reveal a one-ounce gold bar under it.At this point,only two buckets remain uncovered: the bucket that the contestant originally chose and the bucket that was 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 the only other bucket remaining.
If the contestant changes buckets from the original bucket to the other bucket remaining,what is the expected value of the game? Assume that the market price of gold is $1,000 per ounce.

A) $4,000
B) $2,333.33
C) $3,666.67
D) $5,000
E) $1,000

Question 32

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.

Question 33

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.

Question 34

If 25 consecutive tosses of a fair coin have all been heads,some individuals tend to think that the next one "must be tails." This is an example of the ________ fallacy.

A) hot-hand
B) continuum
C) broken-window
D) definist
E) gambler's

Question 35

Consider the following scenario when answering the following questions:
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 receives 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.After the contestant makes a choice,the host lifts up one of the remaining two buckets to reveal a one-ounce gold bar under it.At this point,only two buckets remain uncovered: the bucket that the contestant originally chose and the bucket that was 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 the only other bucket remaining.
If the contestant does not change buckets and stays with the original bucket chosen,what is the probability that the contestant will win the five-ounce gold bar?

A) 1/8
B) 1/3
C) 1/2
D) 2/3
E) 5/8

Question 36

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 exactly one $100 bill.Under each of the other three buckets is exactly one $5 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 up two of the remaining three buckets to reveal a $5 bill under each of them.At this point,only two buckets remain uncovered: the bucket that the contestant originally chose and the bucket that was 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 the only other bucket remaining.
In the context of behavioral economics,the belief that outcomes that have not occurred in the recent past are ________ likely to occur soon,and that recent outcomes are ________ to be repeated in the near future is best referred to as the gambler's fallacy.

A) more; likely
B) more; unlikely
C) less; likely
D) less; unlikely
E) less; never going

Question 37

Consider the following scenario when answering the following questions:
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 receives 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.After the contestant makes a choice,the host lifts up one of the remaining two buckets to reveal a one-ounce gold bar under it.At this point,only two buckets remain uncovered: the bucket that the contestant originally chose and the bucket that was 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 the only other bucket remaining.
If the contestant changes buckets from the original bucket to the other bucket remaining,the expected value of the game is ________; if the contestant does not change buckets and sticks with the original bucket chosen,the expected value of the game is ________.Assume that the market price of gold is $1,000 per ounce.

A) $4,000; $4,000
B) $2,333.33; $3,666.67
C) $3,666.67; $2,333.33
D) $5,000; $1,000
E) $1,000; $5,000

Question 38

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 exactly one $100 bill.Under each of the other three buckets is exactly one $5 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 up two of the remaining three buckets to reveal a $5 bill under each of them.At this point,only two buckets remain uncovered: the bucket that the contestant originally chose and the bucket that was 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 the only other bucket remaining.
If the contestant does not change buckets and stays with the original bucket,what is the expected value of the game?

A) $5.00
B) $95.00
C) $62.50
D) $28.75
E) $76.25

Question 39

Consider the following scenario when answering the following questions:
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 receives 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.After the contestant makes a choice,the host lifts up one of the remaining two buckets to reveal a one-ounce gold bar under it.At this point,only two buckets remain uncovered: the bucket that the contestant originally chose and the bucket that was 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 the only other bucket remaining.
If the contestant changes buckets from the original bucket to the other bucket remaining,what is the probability that the contestant will win the five-ounce gold bar?

A) 1/8
B) 1/3
C) 1/2
D) 2/3
E) 5/8

Question 40

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." Miranda's statement is an example of the ________ fallacy.

A) hot-hand
B) association
C) gambler's
D) dealer's
E) Showtime

Question 41

Suppose 1,000 students were split into two groups of 500.Both groups were first presented with an image of a new high-end pair of jeans produced by Tommy Hilfiger,a clothing company.
The first group was given the following statement and then asked the following question: "The normal retail price of these jeans is $100.Would you be willing to pay $75 for them?"
The second group was given the following statement and then asked the following question: "The normal retail price of these jeans is $250.Would you be willing to pay $75 for them?"
Suppose that 24 percent of the students in the first group answered yes and that 73 percent of the students in the second group answered yes.It is likely that more students in the second group were willing to pay $75 for the pair of jeans because they were told the normal price was much higher.This is an example of a ________ effect in decision-making.

A) clothing
B) marketing
C) utilitarian
D) framing
E) psychosomatic

Question 42

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 return
D) market capitalization
E) priming

Question 43

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.
Ricky's statement is an example of ________ fallacy,and Julian's statement is an example of the ________ fallacy.

A) the hot-hand; hot-hand
B) the gambler's; gambler's
C) the hot-hand; gambler's
D) the gambler's; hot-hand
E) neither the gambler's fallacy nor the hot-hand; gambler's

Question 44

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 fairness
D) framing effects
E) fairness effects

Question 45

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 return
D) market capitalization
E) Rothbardian

Question 46

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 room
D) financial aid
E) felinarian

Question 47

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
B) hot-hand
C) Hayekian
D) priming
E) behaviorist

Question 48

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) casino's
B) dealer's
C) gambler's
D) masked-man
E) hot-hand

Question 49

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) utilitarian
D) framing
E) psychosomatic

Question 50

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 84 percent of customers hearing the sales pitch from the first group purchased the warranty and that 19 percent of the customers hearing the sales pitch from the second group purchased the warranty.The managers concluded that ________ were likely present and changed company policy such that all salespeople are required to recite the sales pitch given by the first group.

A) fairness effects
B) rational effects
C) electronic aptitude effects
D) concerns about fairness
E) framing effects

Question 51

________ occur when the ordering of the questions that are asked influences the answers.

A) Rational expectations
B) Hot-hand effects
C) Fairness effects
D) Priming effects
E) Quasi-rational effects

Question 52

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.
Ricky's statement is an example of the

A) Rickyism fallacy.
B) fallacy of single cause.
C) Sunnyvale fallacy
D) hot-hand fallacy.
E) gambler's fallacy.

Question 53

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 hasn't tossed heads in the last five tosses and he is due to toss heads!

A behavioral economist would conclude that Margaret's statement is an example of the ________ fallacy,and Remi's statement is an example of the ________ fallacy.

A) continuum; hot-hand
B) hot-hand; broken-window
C) gambler's; hot-hand
D) hot-hand; gambler's
E) behavior; broken-window

Question 54

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-window
D) definist
E) gambler's

Question 55

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) utilitarian
D) wording
E) framing

Question 56

Suppose a student tosses a fair coin consecutively seven times and gets tails each time.Which belief about the probability of getting tails on the next toss is NOT consistent with the hot-hand fallacy?

A) The probability of getting heads on the next toss is 4/5.
B) The probability of getting heads on the next toss is 5/6.
C) The probability of getting heads on the next toss is 6/10.
D) The probability of getting heads on the next toss is 9/10.
E) The probability of getting heads on the next toss is 1/2.

Question 57

The opposite of the gambler's fallacy is the

A) hot-hand fallacy.
B) historian's fallacy.
C) fallacy of single cause.
D) dealer's fallacy.
E) mind-projection fallacy.

Question 58

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.

Question 59

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 researchers found that 401(k)participation is significantly higher under automatic enrollment.One possible explanation for this finding is that

A) there was a large shift in the employees' preferences for savings the day plan changes were implemented.
B) framing effects have no influence in employee 401(k)participation decisions.
C) framing effects have a significant influence in employee 401(k)participation decisions.
D) employees will always choose whether to participate based entirely on the economic features of the plan,not the way the decision to participate is framed.
E) employees are acting rationally in the context of standard economic models.

Question 60

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) gambler's
C) casino's
D) genetic
E) naturalistic

Question 61

Which general observation can be inferred from the observation of real people playing the ultimatum game?

A) People care about looks.
B) People care about body image.
C) People care about voice tone.
D) People care about fairness.
E) People care about respect.

Question 62

At the beginning of a semester,a group of five students (Marcus,Gerard,Penelope,Zendaya,and Duane)are asked to order a snack that the teacher will deliver to the students free of charge before the first class of the tenth week of the semester.The three choices are an apple,a banana,or a Snickers candy bar.The teacher collects the orders and finds that two students have ordered an apple,two students have ordered a banana,and one student has ordered a Snickers candy bar.The four students who ordered either an apple or a banana cite health consciousness as the reason for their choice.
Immediately before the orders are scheduled to be delivered,the teacher informs the students that they can switch their choice and order something else from the original menu if they wish,or they can receive what they originally ordered.Which of the following scenarios is the best example of inconsistent intertemporal decision-making?

A) Marcus originally ordered an apple and did not change his choice when prompted.
B) Gerard ordered a banana and switched to an apple when prompted.
C) Penelope ordered an apple and switched to a banana when prompted.
D) Zendaya ordered a banana and switched to a Snickers candy bar when prompted.
E) Duane ordered a Snickers candy bar and did not change his choice when prompted.

Question 63

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.
A finding of no significant difference in 401(k)plan participation after the plan change provides evidence that employee 401(k)participation decisions are made ________,and ________ effects do not exist in the context of 401(k)plan participation.

A) rationally; rational
B) irrationally; priming
C) rationally; framing
D) irrationally; framing
E) rationally; fairness

Question 64

Mario knows that,over the long run,it is in his best interest to save at least 10 percent of his paycheck for retirement.However,each time he receives his weekly paycheck of $1,000,he ends up spending it all and not depositing any to a retirement account.Mario has resolved to contact his employer's Human Resources Department to set up a 401(k)work-sponsored retirement account where the 10 percent would be deducted automatically from his paycheck before it is issued to him each week.It is apparent from this information that Mario realized

A) his intertemporal decisions are inconsistent and he had to take action to make them consistent.
B) his intertemporal decisions are consistent and he had to take action to make them inconsistent.
C) it is better for him to handle sending money to a retirement account than to rely on his employer to send the money to a retirement account on his behalf.
D) he should not be saving for retirement after all because his short-run preferences to spend his entire paycheck are perfectly indicative of his long-run preferences.
E) he should not worry about the future anymore because it will take care of itself.

Question 65

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 Regina's choice not to play the game?

A) hedonic editing
B) gain aversion
C) prospect theory
D) signaling
E) gain-loss asymmetry

Question 66

According to traditional economic theory,which presumes both players are fully rational and wish to maximize their incomes,Derek should maximize his gains by offering Heriberto ________ and keeping ________ for himself.

A) $250.00; $250.00
B) $450.00; $50.00
C) $50.00; $450.00
D) $499.99; $0.01
E) $0.01; $499.99

Question 67

In behavioral economics,________ suggests that people place more value on avoiding losses than attempting to realize gains.

A) prospect theory
B) gain aversion
C) the ambiguity effect
D) the availability heuristic
E) the bandwagon effect

Question 68

The ________ game is an economic experiment in which two players decide how to divide a pot of money.

A) prisoner's dilemma
B) hawk-dove
C) behavioral economics
D) ultimatum
E) hot-hand dilemma

Question 69

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 cascade
D) status quo bias
E) the Rupertorian effect

Question 70

When people want to maintain their current lifestyles and are reluctant to change,they may exhibit what is known as the

A) hot-hand fallacy.
B) gambler's fallacy.
C) status quo bias.
D) hot-hand bias.
E) gambler's bias.

Question 71

Suppose that Derek proposes a split such that Derek will receive $489.99 and Heriberto will receive $10.01.Traditional economic theory predicts that Heriberto will

A) accept the $10.01 because he values receiving $10.01 more than receiving nothing.
B) accept the $10.01 because he wishes to punish Derek for proposing such an unfair split.
C) reject the $10.01 because he wishes to punish Derek for proposing such an unfair split.
D) reject the $10.01 and also will reject a split such that Derek receives $250 and Heriberto receives $250.
E) sometimes accept the $10.01 and sometimes reject the $10.01,depending on his mood at the time.

Question 72

________ applies when a person places more value on avoiding losses than attempting to realize gains.

A) The availability heuristic
B) Prospect theory
C) The trait ascription bias
D) The halo effect
E) The availability cascade

Question 73

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) egocentric
D) time-saving
E) outcome

Question 74

The ________ game is a common game that behavioral economists use in an experimental setting to study how fairness enters into the rational decision-making process.

A) ultimatum
B) prisoner's dilemma
C) behavioral economics
D) gambler's dilemma
E) hawk-dove

Question 75

Jocelyn and Rhonda are playing an ultimatum game where Jocelyn is given $100 and asked to propose a way of splitting it with Rhonda.When Rhonda learns Jocelyn's proposal,Rhonda chooses whether to accept or reject the split.If Rhonda accepts the split,both players receive the money according to Jocelyn's split proposal.If Rhonda rejects the split,both players receive nothing.This game will be played only once,so Rhonda does not have to worry about reciprocity when making her choice.Traditional economic theory presumes that

A) both players are irrational and wish to minimize the payoff to the other player.
B) both players are irrational and wish to maximize their own payoff.
C) both players are rational and wish to minimize their own payoff.
D) both players are rational and wish to maximize their own payoff.
E) the player who proposes the split is fully rational and wishes to maximize his or her own playoff,whereas the player who chooses to accept or reject the split is irrational and wishes to maximize the other player's payoff.

Question 76

The ________ is a cognitive bias that leads people to prefer things to change as little as possible.

A) status quo bias
B) gambler's bias
C) hot-hand fallacy
D) gambler's fallacy
E) hot-hand bias

Question 77

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-saving
D) status quo
E) outcome

Question 78

The ________ bias leads decision-makers to try to protect what they have,even when an objective evaluation of their circumstances suggests that a change would be beneficial.

A) egocentric
B) choice-supportive
C) time-saving
D) status quo
E) outcome

Question 79

Reese and Rebecca are playing an ultimatum game where Reese is given $100 and asked to propose a way of splitting it with Rebecca.When Rebecca learns Reese's proposal,she chooses whether to accept or reject the split.If Rebecca accepts the split,both players receive the money according to Reese's split proposal.If Rebecca rejects the split,both players receive nothing.This game will be played only once,so Reese does not have to worry about reciprocity when making his choice.
Suppose that Reese proposes a split such that Reese will receive $99.99 and Rebecca will receive $0.01.Traditional economic theory predicts that Rebecca will

A) accept the $0.01 because she values receiving $0.01 more than receiving nothing.
B) accept the $0.01 because she wishes to punish Reese for proposing such an unfair split.
C) reject the $0.01 because she wishes to punish Reese for proposing such an unfair split.
D) reject the $0.01 and also will reject a split such that Reese receives $50.00 and Rebecca receives $50.00.
E) sometimes accept the $0.01 and sometimes reject the $0.01,depending on her mood at the time.

Question 80

Peggy and Marcy are playing an ultimatum game where Peggy is given $500 and asked to propose a way of splitting it with Marcy.When Marcy learns Peggy's proposal,Marcy chooses whether to accept or reject the split.If Marcy accepts the split,both players receive the money according to Peggy's split proposal.If Marcy rejects the split,both players receive nothing.This game will be played only once,so Peggy does not have to worry about reciprocity when making her choice.
Which of the following split proposals would Marcy be most likely to accept if she and Peggy were playing the game in an experimental session and both players adhered to bounded rationalism?

A) Peggy receives $449.99 and Marcy receives $50.01.
B) Peggy receives $499.99 and Marcy receives $0.01.
C) Peggy receives $400.00 and Marcy receives $100.00.
D) Peggy receives $350.00 and Marcy receives $150.00.
E) Peggy receives $250.00 and Marcy receives $250.00.