Question 1

Students of microeconomic principles often say they are going to study "tonight," because the only way to pass the exam is to study some every night. When "tonight" comes, some students choose to do something else. Come exam day, these students do not do well on their exam. This observation is an example of how people

Accepted Answer

The observation shows that some students are inconsistent over time, as they intended to study "tonight" but chose to do something else instead. This suggests that their actions do not always align with their intentions, indicating a lack of consistency.

Question 2

Martha routinely has her prescriptions filled at her local SVC pharmacy. Each time that Martha goes to pick up a prescription, there is some problem and Martha has to return to the pharmacy later to get the prescription. Martha finds these return trips very annoying and time-consuming, but continues to request that her doctor send her prescriptions to this pharmacy even though there are several other options in her town. Which of the following is correct?

Accepted Answer

Martha's continued use of the same pharmacy despite experiencing the same problem repeatedly suggests that her behavior is exhibiting inertia, meaning that she is resistant to change and continues with her initial choice even when it is not the most optimal. This behavior is not necessarily rational as she is not adapting her behavior to avoid the inconvenience of return trips to the pharmacy. Option A is not correct as although Martha may have reasons for choosing this particular pharmacy, her behavior is not necessarily rational. Option C is also not correct as there is no evidence to suggest inconsistency over time. Option D is not correct as there is no mention of Martha giving too much weight to vivid observations.

Question 3

Which of the following is not an example of a systematic mistake that people make?

Accepted Answer

Option C is not an example of a systematic mistake. It is a rational decision-making process where Kate weighs the value of her leisure time against the additional wages before responding to her manager. The other options involve systematic mistakes such as overconfidence bias (option A), availability bias (option B), and brand loyalty bias (option D).

Question 4

People interpret evidence to confirm beliefs they already hold. This statement is an example of which of the following systematic mistakes that people make?

Accepted Answer

This statement is an example of confirmation bias, which refers to the tendency for people to seek out and interpret evidence in a way that confirms their existing beliefs or hypotheses. The other options (overconfidence and availability bias) do not specifically address this phenomenon.

Question 5

Domingo is a contestant on a trivia quiz show. For every state capital he can correctly identify, he will win $1,000. However, before identifying any capitals, he must decide how many he thinks he can correctly identify. If he cannot identify as many as he has wagered, Domingo will not win any money. Suppose Domingo says that he can correctly identify 42 state capitals for a potential payoff of $42,000. According to studies of human decision-making, what is most likely to happen?

Accepted Answer

This scenario is an example of overconfidence bias, where individuals tend to overestimate their abilities and performance. Studies have shown that people who make such confident predictions about their abilities are often less accurate than those who are less confident in their predictions. Therefore, it is more likely that Domingo will not be able to identify all 42 state capitals and will not win any money. It is also possible that he may be able to identify some, but not all, of the capitals he wagered on, resulting in a partial payoff. However, given the scenario, the most likely outcome is option B - he will not be able to identify fewer than 42 state capitals and will not win any money.

Question 6

According to behavioral economics, an employee will likely

Accepted Answer

The answer of According to behavioral economics, an employee will...

Question 7

Some studies show that even students who earned high grades in science classes accept disproven explanations for scientific phenomena. These disproven explanations had been acquired prior to the science classes. These studies provide some support for which of the following systematic mistakes that people make?

Accepted Answer

The finding that even students with high grades in science classes can hold onto disproven explanations acquired prior to the class supports the idea that people are reluctant to change their minds, even when presented with evidence that contradicts their previous beliefs. The other choices may also contribute to this phenomenon, but this evidence specifically supports reluctance to change one's mind.

Question 8

According to behavioral economics, if people taking an exam were asked to guess the score they would receive, it would be most likely that

Accepted Answer

Behavioral economics suggests that people tend to be overconfident, leading them to overestimate their abilities or performance, resulting in more people scoring below their guessed score.

Question 9

According to one survey 76 percent of Americans said they were not saving enough for retirement. This example of inconsistency over time

Accepted Answer

It is rational behavior that people tend to prioritize their present needs over uncertain future needs. Saving for retirement requires sacrificing current consumption for future consumption, which can be difficult for many people to do. This inconsistency over time is a common phenomenon in behavioral economics and can be explained by present bias and time inconsistency.

Question 10

People interpret evidence to confirm beliefs they already hold. This statement is an example of which of the following systematic mistakes that people make?

Accepted Answer

This statement is an example of confirmation bias, which refers to the tendency for people to seek out and interpret evidence in a way that confirms their existing beliefs or hypotheses. The other options (overconfidence and availability bias) do not specifically address this phenomenon.

Question 11

Conventional economic theory suggests that in the ultimatum game, the player proposing a split of $50 will propose that she get $49 and that the other player get $1. By the same reasoning, if the amount to be split is $1000, the player proposing the split will propose that she gets

Accepted Answer

Conventional economic theory assumes that players are rational and self-interested. In the ultimatum game, the proposer's goal is to maximize their own share of the money while also ensuring that the responder will accept the offer. The responder's goal is to maximize their own share of the money, even if it means rejecting the offer and neither player receives anything.

In the case of a $1000 split, proposing a split where the proposer gets $998 and the responder gets $2 (option B) may seem like a good choice since the proposer gets the larger share. However, it is possible that the responder will reject this offer since they only receive a small amount. This means that both players will receive nothing, which is not an optimal outcome for the proposer.

On the other hand, proposing a split where the proposer gets $500 and the responder gets $500 (option A) may seem fair, but it is not the best choice for the proposer. If the responder is rational and self-interested, they may reject this offer and neither player will receive anything.

The best choice for the proposer is to propose a split where they get a large share of the money while also offering the responder a reasonable share that will incentivize them to accept the offer. In this case, the proposer should choose option C, where they get $999 and the responder gets $1. This offer ensures that the proposer gets the lion's share of the money, while the responder still receives a small amount, which should be enough to incentivize them to accept the offer.

Question 12

Suppose a group of people read an article on capital punishment. Prior to reading the article, 60% of the members of the group were opposed to capital punishment, while 40% of the members of the group were in favor of capital punishment. According to studies of human decision-making, which of the following is likely?

Accepted Answer

It is unlikely that all members of the group will suddenly change their stance on capital punishment after reading the article. It is also unlikely that they would elect a representative based solely on this issue. Therefore, the most likely outcome is that there will still be some members in favor of capital punishment and some opposed to it, but perhaps with a shift in the percentages. Choice C reflects this possibility.

Question 13

Ihaveathousandfriends Social Networking firm had a remarkably profitable year. As a result, its employees expect to receive bonus checks. Which of the following insights into human behavior do the employees exhibit?

Accepted Answer

The employees' expectation of receiving bonus checks demonstrates that they care about fairness, as they believe they deserve to be rewarded for their work and contribution to the company's profitable year.

Question 14

Brittany decides to save $50 from each paycheck so that she can go on a Spring Break trip with her college roommates. However, when she gets paid this week, she spends all of her money on new clothes. Which of the following insights into human behavior does Brittany exhibit?

Accepted Answer

Brittany's behavior shows inconsistency over time as she deviated from her plan to save $50 from each paycheck towards a specific goal.

Question 15

The results of the ultimatum game illustrate that

Accepted Answer

The results of the ultimatum game, where individuals are given the power to accept or reject a proposed division of money, often show that people are willing to reject unfair offers, even if it means they will receive nothing. This suggests that people's behavior is often driven by an innate sense of fairness.

Question 16

A mother gives her teenage daughter two choices: spend 20 minutes cleaning her room today or spend 25 minutes cleaning her room tomorrow. The same mother gives her same daughter two additional choices: clean out the garage for 20 minutes next Tuesday or 25 minutes next Wednesday. According to economic theory,

Accepted Answer

The answer of A mother gives her teenage daughter two...

Question 17

People tend to wait until deadlines get close to work on projects in part because they believe that they can complete the projects in less time than it will actually take. Which findings from behavioral economics is this observation consistent with?

Accepted Answer

This observation is consistent with the findings that people tend to be time inconsistent and overconfident. Time inconsistency refers to the tendency of people to give more weight to immediate rewards than future ones, leading them to procrastinate. Overconfidence, on the other hand, leads people to underestimate the time and effort required to complete a task, which may cause procrastination and missed deadlines.

Question 18

Don is convinced that it would be best if the U.S. was on a gold standard. He enthusiastically reads any editorials or articles that confirm his view. He frequently dismisses editorials and articles that argue against the gold standard because he presumes they are flawed or written by "crackpots." Don's behavior most clearly illustrates which of the following systematic mistakes that people make?

Accepted Answer

Don's behavior shows that he is reluctant to change his mind, even when presented with opposing arguments. He dismisses these arguments as being flawed or written by "crackpots."

Question 19

Jane spends 85% of her income each year, even though she knows she should be saving 20% for retirement. Jane's behavior indicates that her behavior tends to be

Accepted Answer

The answer of Jane spends 85% of her income each...

Question 20

According to behavioral economics, participants in a half-marathon are likely to have trained

Accepted Answer

Behavioral economics suggests that people often overestimate their future self-control and motivation, leading them to train less than planned and perform worse than anticipated.

Quiz 22: Frontiers in Microeconomics

Which of the following is not an example of a systematic mistake that people make?

People interpret evidence to confirm beliefs they already hold. This statement is an example of which of the following systematic mistakes that people make?

According to behavioral economics, an employee will likely

According to behavioral economics, if people taking an exam were asked to guess the score they would receive, it would be most likely that

According to one survey 76 percent of Americans said they were not saving enough for retirement. This example of inconsistency over time

People interpret evidence to confirm beliefs they already hold. This statement is an example of which of the following systematic mistakes that people make?

Conventional economic theory suggests that in the ultimatum game, the player proposing a split of $50 will propose that she get $49 and that the other player get $1. By the same reasoning, if the amount to be split is $1000, the player proposing the split will propose that she gets

Ihaveathousandfriends Social Networking firm had a remarkably profitable year. As a result, its employees expect to receive bonus checks. Which of the following insights into human behavior do the employees exhibit?

Brittany decides to save $50 from each paycheck so that she can go on a Spring Break trip with her college roommates. However, when she gets paid this week, she spends all of her money on new clothes. Which of the following insights into human behavior does Brittany exhibit?

The results of the ultimatum game illustrate that

People tend to wait until deadlines get close to work on projects in part because they believe that they can complete the projects in less time than it will actually take. Which findings from behavioral economics is this observation consistent with?

Jane spends 85% of her income each year, even though she knows she should be saving 20% for retirement. Jane's behavior indicates that her behavior tends to be

According to behavioral economics, participants in a half-marathon are likely to have trained