Deck 1: How We Decide

Question 1

All of the following are examples of items that rely on ORDINAL measurement EXCEPT:

A) Military ranks.
B) Academic degrees.
C) Height.
D) Happiness.

Answer 1

Height.

Question 2

All of the following are examples of items that rely on CARDINAL measurement EXCEPT:

A) Weight.
B) Academic degrees.
C) Height.
D) Distance.

Answer 2

Academic degrees.

Question 3

The principle of diminishing marginal utility implies that:

A) As we consume more of the same good, our total utility increases.
B) As we consume more of the same good, our total utility decreases.
C) As we consume more of the same good, our utility remains unchanged.
D) As we consume more of the same good, the additional increase in utility from each additional unit of consumption decreases.

Answer 3

As we consume more of the same good, the additional increase in utility from each additional unit of consumption decreases.

Question 4

Ana's dad gave her $20 to spend. She wants to buy gummy bears and M&Ms. Each packet of gummy bears costs $2. Each packet of M&Ms costs $4. Which of the following combinations can she afford to buy?

A) 4 packs of gummy bears and 3 packs of M&Ms.
B) 5 packs of gummy bears and 3 packs of M&Ms.
C) 3 packs of gummy bears and 5 packs of M&Ms.
D) 6 packs of gummy bears and 3 packs of M&Ms.

Question 5

Ana's dad gave her $20 to spend. She wants to buy gummy bears and M&Ms. Each packet of gummy bears costs $2. Each packet of M&Ms costs $4. Which of the following combinations will she most likely buy?

A) 4 packs of gummy bears and 3 packs of M&Ms.
B) 4 packs of gummy bears and 2 packs of M&Ms.
C) 3 packs of gummy bears and 5 packs of M&Ms.
D) 2 packs of gummy bears and 3 packs of M&Ms.

Question 6

Isha likes Kendrick Lamar more than Drake and she likes Drake more than 50 Cent. This means that if Isha's dad gives her the choice of buying a Kendrick Lamar CD or a 50 Cent CD, Isha would prefer to buy the […] CD. This would follow from the assumption that Isha's preferences are […].

A) Kendrick Lamar; transitive.
B) Kendrick Lamar; reflexive.
C) 50 Cent; transitive.
D) 50 Cent; reflexive.

Question 7

Consider the guessing game where people are choosing numbers between 0 and 100. The aim is to come as close as possible to (1/2) of the average number chosen in the group. We will define "Level 0" thinking to imply that everyone chooses 100. Suppose everyone in the group applied Level 2 thinking; i.e. thought through 2 levels. Further suppose that choices could only be in whole numbers. What would you choose in this case to try and come as close as possible to (1/2) of the average?

A) 50.
B) 0.
C) 33.
D) 13.

Question 8

Consider the guessing game where people are choosing numbers between 0 and 100. The aim is to come as close as possible to (1/2) of the average number chosen in the group. We will define "Level 0" thinking to imply that everyone chooses 100. Suppose you believe that one-half of the group will apply 1 level of thinking while the other half will apply 2 levels of thinking. Further suppose that choices could only be in whole numbers. What would you choose in this case to try and come as close as possible to (1/2) of the average?

A) 25.
B) 0.
C) 19.
D) 13.

Question 9

Consider the guessing game where people are choosing numbers between 0 and 100. The aim is to come as close as possible to (2/3) of the average number chosen in the group. We will define "Level 0" thinking to imply that everyone chooses 100. Suppose everyone in the group applied Level 2 thinking; i.e. thought through 2 levels. Further suppose that choices could only be in whole numbers. What would you choose in this case to try and come as close as possible to the target?

A) 67.
B) 45.
C) 33.
D) 30.

Question 10

Consider the guessing game where people are choosing numbers between 0 and 100. The aim is to come as close as possible to (2/3) of the average number chosen in the group. We will define "Level 0" thinking to imply that everyone chooses 100. Suppose you believe that one-half of the group will apply 1 level of thinking while the other half will apply 2 levels of thinking. Further suppose that choices could only be in whole numbers. What would you choose in this case to try and come as close as possible to the target?

A) 37.
B) 30.
C) 67.
D) 44.

Question 11

Consider the guessing game where people are choosing numbers between 0 and 100. The aim is to come as close as possible to (2/3) of the average number chosen in the group. Suppose all participants in this game are fully rational and able to think through all stages of iterated thinking. You would then expect choices to cluster around:

A) 0.
B) 100.
C) 50.
D) 25.

Question 12

Consider the guessing game where people are choosing numbers between 0 and 100. Choices must be in whole numbers. The aim is to come as close as possible to (2/3) of the average number chosen in the group. We will define "Level 0" thinking to imply that everyone chooses 100, in which case the average is 100 and 2/3 of the average is 67. Suppose you believe that two-thirds of the group will apply Level 1 thinking while the other one-third applies Level 2 of thinking. What should you choose? Choose the whole number that you believe would be closest to the answer.

A) 40.
B) 13.
C) 25.
D) 19.

Question 13

Ana is trying to choose between three consumption bundles, A, B and C. A contains 4 packs of gummy bears and 3 packs of M&Ms. B contains 5 packs of gummy bears and 2 packs of M&Ms. C contains 3 packs of gummy bears and 2 packs of M&Ms. Assuming that Ana behaves as if more is better, we can say with some amount of certainty that:

A) Ana may be indifferent between A and B, but she will strictly prefer A to C.
B) Ana will prefer A over B, but C over A.
C) Ana will be indifferent between A and C.
D) Ana will strictly prefer C over B.

Question 14

Which of the following is NOT an integral part of the economic model of utility maximization:

A) As we consume more of the same good, the additional increase in utility from each additional unit of consumption decreases.
B) We try to maximize our utility by choosing appropriate consumption bundles, while our income and the prices of various goods impose constraints on the bundles we can choose.
C) We choose our consumption bundles so that the marginal utility gained per dollar is approximately equal for all the goods that we consume.
D) We choose consumption bundles that contain more of everything since our choices are effectively unconstrained.

Question 15

Isha's dad, who likes to subject his children to various economic experiments, gave her the following pairs of choices over shows she can attend. A: Ed Sheeran or Bruce Springsteen; B: Bruce Springsteen or Coldplay and C: Coldplay or Ed Sheeran. Isha chose Bruce Springsteen for Choice A, Coldplay for Choice B and Ed Sheeran for Choice C. This suggests that Isha's choices:

A) Violate the assumption of transitivity.
B) Are in keeping with transitivity.
C) Are such that she prefers Ed Sheeran over Coldplay over Bruce Springsteen.
D) Violate the assumption of completeness.

Question 16

The following saying is attributed to which of the following? "Reason is, and ought to be the slave of passions; and can never pretend to any other office that to serve and obey them.

A) Jeremy Bentham.
B) David Hume.
C) Adam Smith.
D) Daniel Kahneman.

Question 17

"Ego depletion theory" suggests that:

A) It is often useful to be aggressive and egotistical in order to succeed in business.
B) We are more likely to engage in discrimination when tired.
C) If and when we continually engage in tasks requiring self-control, our ability to control the self diminishes.
D) Unexpected failures typically lead to a loss of self-confidence.

Question 18

Jason consumes two goods X and Y. Both goods cost $1 per unit. However, Jason's utility function is such that each additional unit of X he consumes gives him two utils of happiness while each additional unit of Y he consumes gives him one util of happiness; in other words, each additional unit of X gives Jason twice as much utility as each additional unit of Y. Which of the following statements is correct?

A) Jason's preferences violate non-satiation (the "more is better" axiom).
B) In order to maximize his utility, Jason should only consume Good X.
C) Jason will be indifferent between consuming only Good X, only Good Y or any potential combination of the two goods.
D) In order to maximize his utility, Jason should only consume Good Y.

Question 19

Jason consumes two goods X and Y. Both goods cost $1 per unit. However, Jason's utility function is such that each additional unit of Y he consumes gives him two utils of happiness while each additional unit of X he consumes gives him one util of happiness; in other words, each additional unit of Y gives Jason twice as much utility as each additional unit of X. Which of the following statements is correct?

A) Jason's preferences violate non-satiation (the "more is better" axiom).
B) In order to maximize his utility, Jason should only consume Good X.
C) Jason will be indifferent between consuming only Good X, only Good Y or any potential combination of the two goods.
D) In order to maximize his utility, Jason should only consume Good Y.

Question 20

Jason consumes two goods, X and Y. Both goods cost $1 per unit. Jason's utility function is such that each additional unit of X he consumes gives him the exact same utils of happiness as each additional unit of Y; in other words, Jason gets the same amount of happiness from each additional unit of X or Y. Which of the following statements is correct?

A) Jason's preferences violate non-satiation (the "more is better" axiom).
B) In order to maximize his utility, Jason should only consume Good X.
C) Jason will be indifferent between consuming only Good X, only Good Y or any potential combination of the two goods.
D) In order to maximize his utility, Jason should only consume Good Y.

Question 21

Logan has $20 and is trying to decide between tubs of ice-cream and bars of chocolate. Each tub of ice-cream is worth $10 while each bar of chocolate is worth $5. Logan calculates that if he consumes an entire tub of ice-cream then he will gain an extra 30 units of utility, while if he consumes a bar of chocolate then he will get an extra 15 units of utility. If Logan is only interested in maximizing his utility, which of the following statements cannot be correct?

A) Logan should buy two tubs of ice-cream.
B) Logan should buy four bars of chocolate.
C) Logan should buy one tub of ice-cream and two bars of chocolate.
D) Logan should buy one tub of ice-cream and one bar of chocolate.

Question 22

Julia consumes two goods X and Y. Her current consumption pattern is such that, while she is operating on her budget constraint, her marginal utility per dollar of X is greater than that per dollar of Y. Which of the following statements is true?

A) In order to maximize her utility, Julia should consume less X and more Y.
B) Julia is operating at a point on her budget constraint that lies below and to the right (to the south-east) of the point of tangency between her budget constraint and the highest possible indifference curve.
C) Julia is operating at a point on her budget constraint that lies above and to the left (to the north-west) of the point of tangency between her budget constraint and the highest possible indifference curve.
D) Julia is operating at a point where her budget constraint is tangent to the highest possible indifference curve.

Question 23

Julia consumes two goods X and Y. Her current consumption pattern is such that, while she is operating on her budget constraint, her marginal utility per dollar of Y is greater than that per dollar of X. Which of the following statements is true?

A) In order to maximize her utility, Julia should consume more X and less Y.
B) Julia is operating at a point on her budget constraint that lies below and to the right (to the south-east) of the point of tangency between her budget constraint and the highest possible indifference curve.
C) Julia is operating at a point on her budget constraint that lies above and to the left (to the north-west) of the point of tangency between her budget constraint and the highest possible indifference curve.
D) Julia is operating at a point where her budget constraint is tangent to the highest possible indifference curve.

Question 24

Julia consumes two goods X and Y. Each good costs $5 per unit. She has a budget of $40 at her disposal that she intends to spend on the two goods. Julia thinks she is currently maximizing her utility and operating at a point of tangency between her budget constraint and an indifference curve. She is currently consuming 3 units each of X and Y. Which of the following statements is true?

A) Julia is maximizing her utility.
B) Julia is operating at a point on her budget constraint that lies below and to the right (to the south-east) of the point of tangency between her budget constraint and the highest possible indifference curve.
C) Julia is operating at a point on her budget constraint that lies above and to the left (to the north-west) of the point of tangency between her budget constraint and the highest possible indifference curve.
D) Julia is not maximizing her utility and is operating at a point inside her opportunity set.

Question 25

Vivian consumes two goods X and Y. Her current consumption pattern is such that, while she is operating on her budget constraint, her marginal utility per dollar of X is less than that per dollar of Y. Which of the following statements is true?

A) Vivian is operating at a point on her budget constraint that lies below and to the right (to the south-east) of the point of tangency between her budget constraint and the highest possible indifference curve.
B) In order to maximize her utility, Vivian should consume more X and less Y.
C) Vivian is operating at a point on her budget constraint that lies above and to the left (to the north-west) of the point of tangency between her budget constraint and the highest possible indifference curve.
D) Vivian is operating at a point where her budget constraint is tangent to the highest possible indifference curve.

Question 26

Vivian consumes two goods X and Y. Her current consumption pattern is such that, while she is operating on her budget constraint, her marginal utility per dollar of Y is less than that per dollar of X. Which of the following statements is true?

A) Vivian is operating at a point on her budget constraint that lies below and to the right (to the south-east) of the point of tangency between her budget constraint and the highest possible indifference curve.
B) In order to maximize her utility, Vivian should consume more Y and less X.
C) Vivian is operating at a point on her budget constraint that lies above and to the left (to the north-west) of the point of tangency between her budget constraint and the highest possible indifference curve.
D) Vivian is operating at a point where her budget constraint is tangent to the highest possible indifference curve.

Question 27

Vivian consumes two goods X and Y. Her current consumption pattern is such that, while she is operating on her budget constraint, her marginal utility per dollar of X is equal to that per dollar of Y. Which of the following statements is true?

A) Vivian is operating at a point on her budget constraint that lies below and to the right (to the south-east) of the point of tangency between her budget constraint and the highest possible indifference curve.
B) In order to maximize her utility, Vivian should consume more X and less Y.
C) Vivian is operating at a point on her budget constraint that lies above and to the left (to the north-west) of the point of tangency between her budget constraint and the highest possible indifference curve.
D) Vivian is operating at a point where her budget constraint is tangent to the highest possible indifference curve.

Question 28

Gisella states that in a head-to-head match-up she preferred Elizabeth Warren over Bernie Sanders; Bernie Sanders over Joe Biden but in a match-up between Joe Biden and Elizabeth Warren, she preferred Joe Biden over Elizabeth Warren. Based on this, you would conclude that:

A) Gisella's preferences violate the principle of transitivity.
B) Gisella is politically naïve.
C) Gisella has fallen prey to the conjunction fallacy.
D) Gisella is suffering from hind-sight bias.

Question 29

Jason consumes two goods X and Y. Jason is a rational consumer who wishes to maximize his utility subject to his budget constraint. Jason's preferences are such that he gets the same marginal utility from Good X per dollar of X as the marginal utility from Good Y per dollar of Y. So effectively the slope of his "indifference curves" is the same as the slope of his budget constraint. On the basis of this information, you can conclude that:

A) Jason's utility maximizing consumption bundle is indeterminate; he can choose to consume only Good X or only Good X or any combination of the two goods that lie on the budget constraint.
B) In order to maximize his utility, Jason should consume only Good X and zero of Good Y.
C) In order to maximize his utility, Jason should consume only Good Y and zero of Good X.
D) In order to maximize his utility, Jason should consume less of both goods.

Question 30

The emotional problems experienced by Henry Gage and Damasio's patient Elliott were caused by damage to which part of the brain?

A) The pre-frontal cortex.
B) Nucleus Accumbens (NAcc)
C) Dopamine receptors.
D) Ventral tegmental area (VTA)

Question 31

Which part of the brain houses the "reward centre"?

A) The pre-frontal cortex.
B) Nucleus Accumbens (NAcc).
C) Dopamine receptors.
D) Ventral tegmental area (VTA)
Short essay questions:

Question 32

Briefly describe the difference between economics and psychology in their approaches to decision making.

Question 33

Briefly explain what is meant by "ego depletion theory".

Question 34

Consider the guessing game where people are choosing numbers between 0 and 100. Choices must be in integers. The aim is to come as close as possible to (1/2) of the average number chosen in the group. Briefly explain the basic idea of the "cognitive hierarchy" model. Define Level Zero thinking as one where everyone picks 100. Explain what you would pick if you thought that everyone in the group will apply two levels of thinking.

Question 35

Consider the guessing game where people are choosing numbers between 0 and 100. The aim is to come as close as possible to (2/3) of the average number chosen in the group. Define Level Zero thinking as one where everyone chooses 100, so that the average is 100 and (2/3) of the average is 50. What number should you choose if you believe that everyone will apply two levels of thinking?

Question 36

Consider the guessing game where people are choosing numbers between 0 and 100. The aim is to come as close as possible to (2/3) of the average number chosen in the group. Define Level Zero thinking as one where everyone chooses 100, so that the average is 100 and (2/3) of the average is 67? What number should you pick if you thought that half of the group will apply Level 1 thinking and the other half would apply Level 2 thinking?

Question 37

Ana has $100. She consumes two goods, X and Y. Good X costs $5 each and Good Y costs $10 each. Ana prefers to consume the two goods with a 2:1 ratio, that is, she prefers to have two units of X for each unit of Y. How much X and Y should she consume?

Question 38

Ana has $100. She consumes two goods, X and Y. Both goods cost $5 each. But Ana gets two utils of utility from each extra unit of Good X while she gets 1 util of utility from each extra unit of Good Y. How much X and Y should Ana consume?

Question 39

Ana has $100. She consumes two goods X and Y. Both goods cost $5 each. Ana's preferences are such that she gets the same amount of utility from each extra unit of X as she does from each extra unit of Y. How much X and Y should Ana consume?