Question 1

In competitive markets, people who have systemic biases are likely to:
A) increase over time.
B) exit the market over time or adjust their behaviors.
C) have a comparative advantage over their rational counterparts.
D) never enter markets and participate in them.

Accepted Answer

In competitive markets, people who have systemic biases are likely to either exit the market over time or adjust their behaviors. This is because biased individuals will not be able to compete effectively against rational counterparts and will therefore either voluntarily leave the market or change their behavior to adapt to market conditions. Over time, this should lead to a decrease in the number of biased individuals in the market.

Question 2

How might health clubs price their membership plans to take into account that people are overly optimistic about how committed they are to their exercise goals?

Accepted Answer

The answer of How might health clubs price their membership...

Question 3

A furniture store offers customers no payments for one year on all new purchases. Spendthrift Sam takes advantage of the promotion and buys a new bedroom set, despite only being able to make minimal monthly payments on his credit card balances. What behavioral bias is Sam displaying?

Accepted Answer

The answer of A furniture store offers customers no payments...

Question 4

While on a once-in-a-lifetime road trip, Mr. Jingles had numerous restaurant meals at roadside diners, each time tipping his waitress 20% of the bill. Which basic economic assumption is Mr. Jingles violating?

Accepted Answer

The answer of While on a once-in-a-lifetime road trip, Mr....

Question 5

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

Accepted Answer

Econometrics is the use of statistical and analytical techniques to test economic theory. It involves using mathematical models to analyze economic data and make predictions about future economic trends.

Question 6

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

Accepted Answer

The RAND health insurance study is an example of a field experiment because it involved real-world intervention (assigning different insurance plans to participants) and observed the effects in a natural setting outside of a laboratory environment.

Question 7

Why might overconfidence lead some people to try highly addictive drugs such as methamphetamine?

Accepted Answer

The answer of Why might overconfidence lead some people to...

Question 8

Which of the following is (are) shortcomings of lab experiments? 
A) II
B) I and II
C) III
D) I, II, and III

Accepted Answer

The answer of Which of the following is (are) shortcomings...

Question 9

In a study to examine altruistic behavior, an economics professor recruits college students to participate in a game. The game consists of teams of two, where one person is the proposer and the other the responder. The proposer receives a sum of money and must decide how to split the money with the responder. If the responder likes how the money was split, each person receives the determined amount. If the responder rejects the split, neither player receives any money. This study is an example of a:
A) Pigouvian conjecture.
B) lab experiment.
C) natural experiment.
D) path-dependent experiment.

Accepted Answer

This study is a lab experiment, as it is conducted in a controlled environment to manipulate and observe the behavior of participants. It is not a Pigouvian conjecture (which involves negative externalities), natural experiment (which occurs in a real-world, uncontrolled setting), or path-dependent experiment (which studies how past events affect current choices).

Question 10

Define or describe the following terms.

Accepted Answer

The answer of Define or describe the following terms. ...

Question 11

Suppose that a firm's potential customers succumb to the endowment effect. Explain how a firm could take advantage of this bias.

Accepted Answer

The answer of Suppose that a firm's potential customers succumb...

Question 12

An infomercial is selling a thigh toner for either $99 or three monthly payments of $39 (in which the first payment occurs immediately and remaining payments occur at the end of the next two months).

Accepted Answer

The answer of An infomercial is selling a thigh toner...

Question 13

Which of the following statements is (are) TRUE? 
A) I
B) II
C) III
D) II and III

Accepted Answer

The answer of Which of the following statements is (are)...

Question 14

Researchers examined the effect of hurricanes on Florida counties to see how storms affect local labor markets. Because the path and intensity of hurricanes are random, the researchers are conducting a:
A) compensating differential study.
B) hedonic study.
C) natural experiment.
D) Euclidian experiment.

Accepted Answer

The experiment described involves the use of natural variation (i.e. hurricanes) to create a "treatment" group (counties affected by hurricanes) and a "control" group (counties not affected by hurricanes). This type of experimental design is referred to as a natural experiment. Choices A and B describe different types of analysis techniques that could be applied to data collected in any type of study, but are not relevant to the design of the study itself. Choice D is not a recognized term in experimental design.

Question 15

Yesterday Melinda bought a ticket for today's show. She has a splitting headache and normally would not go. However, she has already paid for the ticket, so she decides to go to the theater and get her money's worth. What behavioral bias is Melinda showing?

Accepted Answer

The answer of Yesterday Melinda bought a ticket for today's...

Question 16

Give an example of each of the following systematic biases.

Accepted Answer

The answer of Give an example of each of the...

Question 17

In 2004, people paid $400,000 for their homes around Crystal City, Virginia. During the housing crisis they could sell those houses for only $300,000. If homeowners are loss-averse, what price do they try to sell their homes for? Graphically, illustrate this situation with supply and demand curves. Is there an excess demand for housing?

Accepted Answer

The answer of In 2004, people paid $400,000 for their...

Question 18

Amazon.com changed its prices based on customers' geographic location to determine how price changes affect sales. This is an example of a:
A) field experiment.
B) permit study.
C) natural experiment.
D) Coase experiment.

Accepted Answer

In a field experiment, researchers manipulate independent variables in a natural setting and observe the effects on dependent variables. In this case, Amazon.com manipulated the prices based on customers' geographic locations and observed the effects on sales, which falls under the definition of a field experiment. Permit study, natural experiment, and Coase experiment are not appropriate for this scenario.

Question 19

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

Accepted Answer

This study is a field experiment because it involves manipulating the names on résumés to observe the effect on callbacks and is conducted in a real-world setting (sending out résumés to actual businesses).

Question 20

Every Monday, two college students, Justin and Danielle, make plans to study on the weekend. If Justin is time-consistent and Danielle is time-inconsistent, what happens over the weekend?

Accepted Answer

The answer of Every Monday, two college students, Justin and...

Quiz 18: Behavioral and Experimental Economics

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

How might health clubs price their membership plans to take into account that people are overly optimistic about how committed they are to their exercise goals?

A furniture store offers customers no payments for one year on all new purchases. Spendthrift Sam takes advantage of the promotion and buys a new bedroom set, despite only being able to make minimal monthly payments on his credit card balances. What behavioral bias is Sam displaying?

While on a once-in-a-lifetime road trip, Mr. Jingles had numerous restaurant meals at roadside diners, each time tipping his waitress 20% of the bill. Which basic economic assumption is Mr. Jingles violating?

What is econometrics?

Why might overconfidence lead some people to try highly addictive drugs such as methamphetamine?

Which of the following is (are) shortcomings of lab experiments?

Define or describe the following terms.

Suppose that a firm's potential customers succumb to the endowment effect. Explain how a firm could take advantage of this bias.

An infomercial is selling a thigh toner for either $99 or three monthly payments of $39 (in which the first payment occurs immediately and remaining payments occur at the end of the next two months).

Which of the following statements is (are) TRUE?

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

Yesterday Melinda bought a ticket for today's show. She has a splitting headache and normally would not go. However, she has already paid for the ticket, so she decides to go to the theater and get her money's worth. What behavioral bias is Melinda showing?

Give an example of each of the following systematic biases.

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

Every Monday, two college students, Justin and Danielle, make plans to study on the weekend. If Justin is time-consistent and Danielle is time-inconsistent, what happens over the weekend?