Deck 22: Behavioral Economics and Modern Economic Policy

Question 1

All markets:

A) distribute according to need.
B) have money prices.
C) are a type of coordination mechanism.
D) are laissez-faire.

Answer 1

C

Question 2

Behavioral economic policy:

A) builds on traditional economic policy.
B) replaces traditional economic policy.
C) is based on laissez-faire principles.
D) supports pushes as opposed to nudges.

Answer 2

A

Question 3

Traditional economics argues that people know what they want better than anyone else, and this justifies the traditionalists' concentration on maximizing people's consumption.

Answer 3

True

Question 4

Mechanism designers start by building models and then look for problems that their models can solve.

Question 5

Which type of price is an implicit price of an action whose value is measured in opportunity costs?

A) Relative
B) Guaranteed
C) Equilibrium
D) Shadow

Question 6

Only money prices affect incentives; shadow prices do not.

Question 7

Economic engineering:

A) focuses exclusively on social factors that affect incentives.
B) is the process of designing markets and coordinating mechanisms to achieve a specific goal.
C) simulates virtual economies on the computer and lets coordination mechanisms emerge.
D) is a scientific approach to economics in contrast to the heuristic supply/demand model.

Question 8

Economic science tries to design mechanisms to coordinate people's actions better.

Question 9

Behavioral economists believe that people should smoke as many cigarettes as they want.

Question 10

Among economists, a basic economic policy debate regarding markets is:

A) whether markets ought to have prices.
B) whether to let economic forces exist.
C) what data is available for a model given institutions.
D) what coordinating mechanism will best solve a specific problem.

Question 11

Which type of model can account for all types of allocating and coordinating mechanisms, even those without explicit money prices?

A) Butterfly effect
B) Path-dependent
C) Expression
D) Shadow price

Question 12

An auction is an example of a coordination mechanism.

Question 13

Suppose an instructor takes off points for students coming late to class. He then finds that the number of late arrivals has risen. This could have happened because the:

A) money price of late arrivals declined.
B) shadow price of late arrivals rose.
C) shadow price of late arrivals declined.
D) teacher did not fine the students monetarily for arriving late.

Question 14

Which question is typically asked by economic engineers?

A) Can we assume that people always behave rationally?
B) Can we increase the amount of mathematics in the model?
C) Can we design mechanisms to improve the coordination of people's actions?
D) Can we rely on the markets to distribute income fairly?

Question 15

Behavioral economic policy is likely to:

A) suggest no government involvement.
B) be based on the assumption of rationality.
C) assume that the way choices are presented doesn't affect the decision made.
D) take into account people's predictably irrational behavior.

Question 16

Traditional models incorporate social and moral incentives into price.

Question 17

If government requires a firm to implement a nudge, the government's action is not a nudge.

Question 18

What do markets with prices, dormitory lotteries, and first-come-first-served rules have in common?

A) They were designed by economic engineers.
B) They are coordination mechanisms.
C) They are nudges.
D) They use price incentives.

Question 19

There is always a single market coordination mechanism in economic models.

Question 20

Behavioral economists and traditional economists both believe that everything matters.

Question 21

Shadow prices are designed to take into account:

A) the underground economy.
B) government intervention.
C) social and moral pressures.
D) market forces.

Question 22

When the American League instituted designated batters (that is, pitchers were exempt from batting), the shadow prices of throwing bean-balls (a pitch aimed at the batter's head):

A) rose.
B) fell.
C) did not change.
D) disappeared.

Question 23

Economists who identify a goal and then design a mechanism to achieve that goal are engaging in:

A) setting money prices.
B) laissez-faire policies.
C) choice architecture.
D) mechanism design.

Question 24

Behavioral mechanism design economists face which of the following problems when solving policy issues?

A) How much mathematics to include in the model, an issue only behavioral economists face
B) How to find the right combination of market, social, and moral incentives that will achieve a goal
C) How to find the right combination of social and moral incentives but without considering prices
D) How to convince people that their approach to policy issues will work, an issue only behavioral economists face

Question 25

Shadow prices:

A) affect decisions just as money prices do.
B) are not binding and so do not affect decisions.
C) are illegal but still affect decisions.
D) exist only when money prices are paid in the market.

Question 26

To have shadow prices you have to have:

A) opportunity costs.
B) money prices.
C) free markets.
D) laws.

Question 27

One reason economists began to look at more effective coordination mechanisms is that they began to:

A) use advanced calculus in their models.
B) rely more heavily on deductive reasoning.
C) focus more on people's predictably irrational behavior.
D) focus more on the assumption that people are rational.

Question 28

Which of the following is not a policy implication of the traditional model?

A) For the most part, the government needs to stay out of people's way and let them trade.
B) There is a potential role for government if there are positive externalities.
C) The government should take moral and social incentives into account when considering intervention.
D) There is a potential role for government if there are negative externalities.

Question 29

Traditional economics assumes that:

A) the context of choices affects behavior.
B) the way choices are presented doesn't matter.
C) people are predictably irrational.
D) laissez-faire is the right precept to apply.

Question 30

Google and Yahoo internet search engines are examples of:

A) free market pricing models.
B) government-implemented models.
C) coordinating mechanism designs.
D) auction markets.

Question 31

Money prices are:

A) essential to a coordinating mechanism.
B) not essential to a coordinating mechanism.
C) always the best way to solve economic problems.
D) unfair ways of coordinating individual actions.

Question 32

The opportunity cost concept takes into account:

A) only shadow prices.
B) only money prices.
C) both money and shadow prices.
D) neither money prices nor shadow prices.

Question 33

If an economist believes that choice architecture is important, he or she is more likely to be a:

A) traditional economist.
B) Keynesian economist.
C) behavioral economist.
D) formal economist.

Question 34

Behavioral economists have found that:

A) people are always irrational when considering incentives.
B) markets are the best way to organize mutually beneficial exchanges.
C) only market prices matter when people make decisions.
D) design mechanisms must take social factors as well as price into account.

Question 35

Nudges are meant to:

A) affect people's behavior while allowing them to retain free choice.
B) limit the choices available in order to affect people's behavior.
C) change the incentives of choices offered in order to alter behavior.
D) control people's behavior on the basis of the goals of government.

Question 36

Behavioral economic policy examines:

A) the level of mathematics required to make sound judgments.
B) people's unpredictable irrational behavior.
C) people's predictable irrational behavior.
D) people's rational behavior.

Question 37

Dating sites that match individuals such as Match.com and eHarmony.com are:

A) free-market pricing models.
B) government-implemented models.
C) coordinating mechanism designs.
D) auction markets.

Question 38

Shadow prices:

A) are set by the government.
B) are illegal.
C) exist only in black markets.
D) are paid in terms of opportunity costs.

Question 39

Focusing on how people actually behave is the main motivation behind ________ economics.

A) traditional
B) behavioral
C) modern
D) home

Question 40

One way to raise the money price of throwing a bean-ball (a pitch aimed at the batter's head) is to:

A) institute a fine for bean-balls.
B) eliminate designated hitters.
C) add designated hitters to the National League.
D) allow batters hit by balls to walk.

Question 41

Nudges can be used by:

A) firms only.
B) firms, but only as a last resort.
C) firms and government.
D) government only.

Question 42

A professor's students are not getting good grades because of lack of studying. A behavioral economist would say that one reason the students are not studying is that:

A) they prefer to hang out with friends and watch television and therefore are making an optimal choice.
B) the professor is not forcing the students to study for the tests.
C) the cost of studying (not being with friends) would have to be paid now, whereas the benefit (better grades) comes later.
D) we live in a society in which grades in college are not important.

Question 43

In economics, the context in which decisions are presented is referred to as:

A) self-confirming equilibrium.
B) enlightened self-interest.
C) choice architecture.
D) shadow prices.

Question 44

When looking back on past choices, some people feel they should have exercised more and eaten less. The fact that they could not make that choice at that point in time is an example of less than optimal choices resulting from the:

A) complicated nature of the choice.
B) fact that the benefits and costs of choices are separated by time.
C) fact that we don't make food and exercise choices very frequently. D. market system within which we make choices.
D) market system within which we make choices.

Question 45

Paternalism describes a situation in which:

A) the government passes laws that require citizens to change their behavior.
B) people are likely to make bad decisions over and over.
C) there is no role for firms to influence people's behavior.
D) people are led to make better decisions (as judged by an outside decision maker).

Question 46

Which philosophy supports the idea that people should be free to make their own decisions?

A) Communist
B) Libertarian
C) Fascist
D) Traditional

Question 47

The deliberate imposition of structure in an environment to induce people to make better choices (for example, etching flies in a urinal) is called:

A) economic engineering.
B) choice architecture.
C) push policy.
D) enlightened self-interest.

Question 48

Restaurants will add high-price food items to the menu to lure diners to choose foods just below the high-price items. These items generally have the highest profit margin. This is an example of:

A) price discrimination.
B) irrational behavior.
C) enlightened self-interest.
D) choice architecture.

Question 49

Grocery stores often place items people buy on impulse at the checkout lane. This is an example of:

A) choice architecture.
B) government intervention.
C) price fixing.
D) irrational behavior.

Question 50

Paternalism leads people to:

A) make decisions that are good for themselves that they might not have made on their own.
B) consider what their parents would do when making decisions even though they themselves might not make those same decisions.
C) buy only what they need instead of what they want because doing otherwise is bad environmental stewardship.
D) use their abilities as well as possible and purchase only what they need regardless of price.

Question 51

Which of the following is an example of a nudge?

A) Income is redistributed through tax and spending programs.
B) A farmer's market raises prices because a storm destroyed crops.
C) Government taxes cigarettes.
D) An employee must check a box to opt out of a retirement savings program.

Question 52

A behavioral economist, in contrast to a traditional economist, would argue that one reason people have a hard time losing weight is that:

A) people prefer to eat sweets and fatty foods and therefore are making an optimal choice.
B) the cost of losing weight (exercising and eating less) must be incurred now, whereas the benefit (being thinner) isn't enjoyed till later.
C) fatty and sweet foods cost more than healthy foods in general, and therefore people buy more sweet and fatty foods.
D) we live in a sedentary society with little opportunity for rigorous exercise.

Question 53

Combining the idea of freedom from constraint with well-intentioned guidance leads to:

A) purposeful behavior.
B) incentive compatibility problems.
C) libertarian paternalism.
D) market failure.

Question 54

A deliberate design within the choice architecture that alters people's behavior in predictably positive ways is called an example of:

A) a push.
B) a nudge.
C) purposeful behavior.
D) traditional behavior.

Question 55

Suppose a company wanted to try to improve the health of its workers as part of its health initiative program. When constructing a new building, it decides to put the elevators significantly farther than the stairs from the main entrance. This would be considered as an example of a(n):

A) push.
B) nudge.
C) irrational behavior.
D) laissez-faire policy.

Question 56

Suppose the cafeteria at a university puts healthy foods such as fruit and yogurt in an easily accessible location but places junk foods somewhere slightly less prominent. This would be an example of a(n):

A) push.
B) irrational behavior.
C) nudge.
D) incentive compatibility problem.

Question 57

North Carolina's school choice program gives parents a bigger say over where their children go to school. To help with the choice, parents are mailed a sheet of paper listing the average of the math and reading scores for each school they could apply to. Providing this information is an example of a(n):

A) push.
B) nudge.
C) shadow price.
D) incentive compatibility problem.

Question 58

On the forms to open a checking account, automatic bill paying is often the default option, with a box to check if one wants to opt out. This is an example of a:

A) push.
B) nudge.
C) shadow price.
D) flawed assumption.

Question 59

Presenting options in a fashion that makes people more likely to make one choice over another is called:

A) the ACE model.
B) natural experiments.
C) choice architecture.
D) traditional economics

Question 60

Advocates of nudge policy argue that these policies are libertarian because they:

A) enhance happiness and therefore liberty.
B) leave people free to make their own choices.
C) correct market distortions.
D) change incentives without forcing people to make particular decisions.

Question 61

Having more money and a bigger house than other people is the key to happiness. Which economic approach is most consistent with this idea?

A) Behavioral
B) Keynesian
C) Traditional
D) Engineering

Question 62

Requiring people to opt out of organ donation when getting a driver's license is an example of a(n):

A) pricing nudge.
B) encouragement nudge.
C) information nudge.
D) advantageous default option nudge.

Question 63

To guide a person through complicated decisions such as whether to get a particular credit card, behavioral economists advocate electronic disclosure in which characteristics such as late fees and high interest rates would be explained clearly. They call this type of nudge a(n):

A) pricing nudge.
B) encouragement nudge.
C) information nudge.
D) advantageous default option nudge.

Question 64

An employer's insurance program is set up so that employees have to opt out rather than opt in. This is an example of a(n):

A) pricing nudge.
B) encouragement nudge.
C) information nudge.
D) advantageous default option nudge.

Question 65

Which of the following do firms take advantage of to maintain high profits?

A) There is relatively little government oversight in the marketplace.
B) People tend to gravitate toward the default option.
C) People are unaffected by default options.
D) The government only fines companies that have over $2 million in sales each year.

Question 66

Suppose the government passes laws that require restaurants to disclose the nutritional content of their menu items. This would be an example of a:

A) push.
B) nudge.
C) shadow price.
D) flawed assumption.

Question 67

What distinguishes nudge policies from push policies?

A) Nudges are libertarian, whereas pushes are not.
B) Nudges affect choices, whereas pushes do not
C) Nudges affect incentives, whereas pushes do not.
D) Nudges are implemented by the government; pushes are implemented by firms.

Question 68

Sending people letters about their energy usage along with energy-saving tips is:

A) an example of an information nudge.
B) an example of an advantageous default option nudge.
C) an example of a pricing nudge.
D) not a nudge.

Question 69

If workers enroll in a savings plan and are asked to check a box to opt out of it, we are seeing an example of a nudge involving the:

A) enlightened option.
B) information option.
C) default option.
D) incentive compatibility problem.

Question 70

Suppose the federal government passes laws that require banks to disclose the advantages of having their customers use automatic bill paying (an example of a RECAP policy). This would be an example of a:

A) push.
B) nudge.
C) shadow price.
D) flawed assumption.

Question 71

When online seller Amazon sets the default mail option as two-day mailing instead of the free-shipping option, it is employing:

A) a RECAP.
B) a tax.
C) a push.
D) a nudge.

Question 72

If the RECAP policy was imposed on firms by the government, it would be considered a(n):

A) shadow price.
B) advantageous default option nudge.
C) push.
D) purposeful behavior.

Question 73

Economists agree that:

A) sometimes incentives facing a decision-maker will not achieve the desired result.
B) incentives are likely to be inconsequential unless prices are involved.
C) social and moral pressures cannot be modeled.
D) markets are always the most efficient means of solving society's problems.

Question 74

If the government were to regulate the way AT&T presents its phone plans, such a policy would be a:

A) nudge.
B) push.
C) tax.
D) tariff.

Question 75

The idea that a person wants to have a bigger house in order to outdo his or her neighbors is referred to as:

A) enlightened self-interest.
B) the incentive compatibility problem.
C) luxury fever.
D) irrational.

Question 76

Taxing cigarettes is:

A) an example of an information nudge.
B) an example of an advantageous default option nudge.
C) an example of a pricing nudge.
D) not a nudge.

Question 77

RECAP is a type of nudge that stands for:

A) record, evaluate, and compare alternative prices.
B) replay, enumerate, and contrast active policies.
C) reevaluate, enlist, and compare attractive products.
D) restate, enjoy, and choose alternative products.

Question 78

If the government were to put policies in place to regulate carbon emissions from factories, such a policy would be a:

A) nudge.
B) tariff.
C) lobby.
D) push.

Question 79

In Minnesota, tax collectors found that threatening late filers with warnings and fines does not increase tax compliance. Instead, they publicized the fact that most Minnesotans had already filled in their returns. What type of nudge is this?

A) An information nudge
B) A pricing nudge
C) An advantageous default option nudge
D) There is no nudge involved.

Question 80

When people make decisions in which they only mimic what they think other people are doing, they are engaging in:

A) purposeful behavior.
B) enlightened self-interest.
C) herding.
D) mutual interdependence.