Question 1

The relationship between the default option bias and a reference point is best described by which of the following:

Accepted Answer

A)   Once a default option is suggested, an individual that displays the default option bias compares other options to the default option. Thus, the default option becomes a reference point.
B)   There is no relationship.
C)   A default option is necessarily a reference point.
D)   An individual that displays the default option bias changes his previous reference point when a default option is suggested. A

Question 2

The endowment effect is:

Accepted Answer

A)   The difference in willingness to pay and willingness to accept when there should not be a difference.
B)   Always in violation of the rational model.
C)   Describes the bias of individuals endowed with more money.
D)   An increase in utility from more income. A

Question 3

In the experiment discussed on page 5 of Chapter 4 , the researchers could have suggested any number to the participants. For example, the researchers could have suggested the number given by the subjects' arrival to the experiment instead of the last two digits of the social security number.

Accepted Answer

A) True 
 B)False  False

Question 4

Refer to Figure 4.3. Bundle $\mathrm{x}$ and $\mathrm{y}$ both have more of good $\mathrm{I}$ than reference points $\mathrm{r}$ and s. The curve $v_{s}$ traces out the difference curve when using reference point s. Let $\Delta_{1}$ be the amount of good $\mathrm{j}$ the individual must be given in order to be indifferent between bundle $\mathrm{y}$ and bundle $\mathrm{x}$ under reference point $\mathrm{s}$. Let $\Delta_{2}$ be the amount of good $\mathrm{j}$ the individual must be given to give up the SAME amount of good i under reference point $r$. Which of the following is true?

Accepted Answer

A) Δ1≤Δ2\Delta_{1} \leq \Delta_{2}Δ1≤Δ2 B) Δ1=Δ2\Delta_{1}=\Delta_{2}Δ1=Δ2 C) Δ1<Δ2\Delta_{1}<\Delta_{2}Δ1<Δ2 D) \Delta_{2}">Δ1>Δ2\Delta_{1}>\Delta_{2}Δ1>Δ2

Question 5

Constant sensitivity implies all of the follow except:

Accepted Answer

A)   Identical utility curves for all reference points.
B)   Indifference between two consumption bundles with respect to one reference point implies indifference between these same consumption bundles with respect to any reference point.
C)   No preference reversals can occur.
D)   Constant marginal pain from losses.

Question 6

Strictly diminishing marginal pain from losses implies what about the slope of the value function in the domains of losses?

Accepted Answer

A)   Concavity.
B)   Linearity.
C)   Convexity.
D)   None of the above.

Question 7

Suzie has $\$ 50$ of income and a utility function given by $u=\sqrt{x_{1}}+\sqrt{x_{2}}$. The price of good $2, p_{2}$, is $\$ 2$.
a. First suppose $x_{1}=0$. How much of $x_{2}$ does Suzie have? 
b. How much is Suzie willing to pay to acquire one unit of $x_{1}$ ? 
c. Now suppose $x_{1}=1$. How much is Suzie willing to sell her one unit of $x_{1}$ ? 
d. George faces the same prices and has the same income as Suzie, but his utility function is given by 
e. Repeat part a.
f. Repeat part b.
g. Repeat part c.
h. What feature of the utility function results in $p^{W T P} \neq p^{W T A}$ ?

Accepted Answer

The answer of Suzie has $\$ 50$ of income and...

Question 8

An individual must choose between 4 insurance policies, $x_{1}, x_{2}, x_{3}, x_{4}$, where $x_{1}$ is the company's default option. The utility the individual receives from each option is ordered the following way: $u\left(x_{3}\right)>u\left(x_{1}\right) \geq u\left(x_{2}\right)>u\left(x_{4}\right)$. Which option does the individual choose?

Accepted Answer

A)    x1x_{1}x1​ 
B)    x2x_{2}x2​ 
C)    x3x_{3}x3​ 
D)    x4x_{4}x4​

Question 9

What is the difference between the status quo bias and the default option bias?

Accepted Answer

A)   No difference.
B)   The default option bias is a bias that occurs when there is a preference for a default option and a status quo bias is a bias that results from a preference for the currently chosen option.
C)   The default option bias is a bias that occurs when there is a preference for a default option and a status quo bias is a bias for what other individuals have chosen.
D)   The default option bias is a preference for failing to pay back loans, whereas a status quo bias is a bias that results from a preference for the currently chosen option.

Question 10

Diminishing Sensitivity implies that when there are two goods (i \& j) and when I expect less of good i, then to give up a set amount of good i, I need to be compensated with less j THAN when I am initially expecting more of good i.

Accepted Answer

A) True 
 B)False

Question 11

In 3 sentences describe the relationship between the default option and the "anchoring and adjustment" mechanism.

Accepted Answer

The answer of In 3 sentences describe the relationship between...

Question 12

The endowment effect is only an "anomaly" if utility is linear.

Accepted Answer

A) True 
 B)False

Question 13

Standard utility maximization cannot be used to describe preference reversals.

Accepted Answer

A) True 
 B)False

Question 14

The rational model predicts that if an individual has complete preferences over a set of goods, then the fact that one of the goods is the default option should have no impact on his choices.

Accepted Answer

A) True 
 B)False

Question 15

There are three bundles of goods: $x, y, z$. A consumer has preferences such that $x \geqslant$ $y, y \geqslant z$. If $x \sim z$ then the consumer's preferences cannot be described as transitive.

Accepted Answer

A) True 
 B)False

Question 16

A preference for the default option is called:

Accepted Answer

A)   Indifference bias.
B)   Default option bias.
C)   Loss aversion.
D)   Indecisive bias.

Question 17

If the amount of utility I receive from a good is the same amount of utility I would lose if the good was taken away then I'm willing to pay the same amount to acquire the good as I would be to sell the good.

Accepted Answer

A) True 
 B)False

Question 18

If there is a violation of transitivity or completeness then a standard utility function cannot represent the individual's preferences.

Accepted Answer

A) True 
 B)False

Question 19

A default option is the option that is selected when the decision-maker is indifferent between choices.

Accepted Answer

A) True 
 B)False

Question 20

The default option bias implies that the default option is specified by an outsider, whereas the status quo bias does not have this implication.

Accepted Answer

A) True 
 B)False

Exam 4: Status Quo Bias and Default Options

The relationship between the default option bias and a reference point is best described by which of the following:

The endowment effect is:

In the experiment discussed on page 5 of Chapter 4 , the researchers could have suggested any number to the participants. For example, the researchers could have suggested the number given by the subjects' arrival to the experiment instead of the last two digits of the social security number.

Constant sensitivity implies all of the follow except:

Strictly diminishing marginal pain from losses implies what about the slope of the value function in the domains of losses?

What is the difference between the status quo bias and the default option bias?

Diminishing Sensitivity implies that when there are two goods (i \& j) and when I expect less of good i, then to give up a set amount of good i, I need to be compensated with less j THAN when I am initially expecting more of good i.

In 3 sentences describe the relationship between the default option and the "anchoring and adjustment" mechanism.

The endowment effect is only an "anomaly" if utility is linear.

Standard utility maximization cannot be used to describe preference reversals.

The rational model predicts that if an individual has complete preferences over a set of goods, then the fact that one of the goods is the default option should have no impact on his choices.

There are three bundles of goods: $x, y, z$ . A consumer has preferences such that $x \geqslant$ $y, y \geqslant z$ . If $x \sim z$ then the consumer's preferences cannot be described as transitive.

A preference for the default option is called:

If the amount of utility I receive from a good is the same amount of utility I would lose if the good was taken away then I'm willing to pay the same amount to acquire the good as I would be to sell the good.

If there is a violation of transitivity or completeness then a standard utility function cannot represent the individual's preferences.

A default option is the option that is selected when the decision-maker is indifferent between choices.

The default option bias implies that the default option is specified by an outsider, whereas the status quo bias does not have this implication.

Exam 4: Status Quo Bias and Default Options

The relationship between the default option bias and a reference point is best described by which of the following:

The endowment effect is:

In the experiment discussed on page 5 of Chapter 4 , the researchers could have suggested any number to the participants. For example, the researchers could have suggested the number given by the subjects' arrival to the experiment instead of the last two digits of the social security number.

Constant sensitivity implies all of the follow except:

Strictly diminishing marginal pain from losses implies what about the slope of the value function in the domains of losses?

What is the difference between the status quo bias and the default option bias?

Diminishing Sensitivity implies that when there are two goods (i \& j) and when I expect less of good i, then to give up a set amount of good i, I need to be compensated with less j THAN when I am initially expecting more of good i.

In 3 sentences describe the relationship between the default option and the "anchoring and adjustment" mechanism.

The endowment effect is only an "anomaly" if utility is linear.

Standard utility maximization cannot be used to describe preference reversals.

The rational model predicts that if an individual has complete preferences over a set of goods, then the fact that one of the goods is the default option should have no impact on his choices.

There are three bundles of goods: x,y,zx, y, zx,y,z . A consumer has preferences such that x⩾x \geqslantx⩾ y,y⩾zy, y \geqslant zy,y⩾z . If x∼zx \sim zx∼z then the consumer's preferences cannot be described as transitive.

A preference for the default option is called:

If the amount of utility I receive from a good is the same amount of utility I would lose if the good was taken away then I'm willing to pay the same amount to acquire the good as I would be to sell the good.

If there is a violation of transitivity or completeness then a standard utility function cannot represent the individual's preferences.

A default option is the option that is selected when the decision-maker is indifferent between choices.

The default option bias implies that the default option is specified by an outsider, whereas the status quo bias does not have this implication.

There are three bundles of goods: $x, y, z$ . A consumer has preferences such that $x \geqslant$ $y, y \geqslant z$ . If $x \sim z$ then the consumer's preferences cannot be described as transitive.