Question 1

Behavioral economists:

Accepted Answer

This is because behavioral economists typically assume that individuals have well-defined objectives, that there is a connection between an individual's objectives and actions and that the actions chosen affect an individual's well-being. They also rely on data from the real world and often use mathematical models to describe behavior. Therefore, option A is incorrect, option C is incorrect, and option D is only partially correct.

Question 2

Neuroeconomics is a new field of economics motivated by the speculation that studying the human neural system can lead to:

Accepted Answer

The main motivation behind neuroeconomics is to develop a unified theory of decision making that integrates insights from economics, psychology, and neuroscience. While neuroeconomics may lead to better laboratory experiments and contribute to the development of mathematical models of utility theory, its primary goal is to create a comprehensive model of decision-making processes. Tenure is not a relevant outcome of research in neuroeconomics.

Question 3

Suppose you conduct a study in which subjects are asked the following questions: 1."Imagine that you have decided to go to a basketball game where the cost is $25 per ticket.As you enter the arena,you discover that you have lost your $25.Would you still pay $25 for a ticket?" 2."Imagine that you have decided to go to a basketball game and you pay $25 for the ticket.As you are walking into the arena you realize that you have lost your ticket.Would you pay another $25 for another ticket?" You find that 90% of your subjects answered "Yes" to the second question,compared to the 50% that answered "Yes" to the first question.This is an example of:

Accepted Answer

This scenario exemplifies narrow framing, where individuals make decisions without considering all implications or alternatives. The difference in responses is due to the framing of each situation, despite the economic loss being the same in both scenarios.

Question 4

Which of the following does NOT describe an advantage of experiments?

Accepted Answer

The statement "It is generally cheaper to conduct experiments than it is to compute mathematical models" is not true. In fact, experiments can be quite expensive to conduct in terms of time, resources, and participant compensation.

Question 5

Which of the following concepts should be LEAST associated with behavior economics?

Accepted Answer

While behavior economics often challenges standard economic theory, uses laboratory experiments, and incorporates insights from neuroeconomics, it does not necessarily reject highly-mathematical economic models. In fact, some behavior economists use mathematical models to better understand human behavior and decision-making. However, they also recognize the limitations of these models and the importance of incorporating real-world concerns and complexities.

Question 6

The endowment effect:

Accepted Answer

The endowment effect is a well-documented phenomenon where people tend to value something more highly when they own it than when they do not. This concept has been demonstrated in many different scenarios, from experiments where participants are given an item and asked to set a selling price, to real-world situations where people are reluctant to part with possessions even when offered a fair price.

Question 7

Narrow framing:

Accepted Answer

Narrow framing refers to the tendency to group related items into categories and consider other items in the same category while ignoring items in different categories. This can narrow the focus of decision-making and lead to choices that may not consider all available options.

Question 8

Which of the following is true regarding the use of laboratory experiments in economic analysis?

Accepted Answer

Decisions made in laboratory experiments are often simplified and controlled, and may not fully reflect real-world decision making that is affected by factors such as emotions, social pressures, and external constraints. Therefore, decisions made in the laboratory may differ from those made in the real world.

Answer: B
 This statement is false. Laboratory experiments do introduce additional influences on decision making, such as the structure of the experiment, the incentives and feedback provided to subjects, and the social and institutional environment in which the experiment takes place. These influences can affect the behavior of subjects and the validity of the experimental results.

Answer: C
 This statement may or may not be true, depending on the design of the experiment and the selection of subjects. Experimental subjects may be recruited from a specific population or pool of volunteers, or they may be selected randomly or stratified by certain characteristics. The representativeness of the sample affects the external validity of the experimental results and the generalizability of the findings to other contexts.

Answer: D
 This statement is false. Economic analysis has increasingly employed laboratory experiments in recent decades, as a way of testing theoretical predictions, validating assumptions, and exploring the behavioral and cognitive foundations of economic phenomena. Laboratory experiments have been used in a wide range of fields, from game theory and market design to behavioral economics and development economics.

Question 9

Motivations for behavioral economics include:

Accepted Answer

The motivations for behavioral economics include both options A and C which state that people sometimes make choices that are inconsistent with standard economic theory and standard economic theory can lead to unreasonable conclusions about consumer welfare. Therefore, the best choice is D.

Question 10

A person who uses a rule of thumb to determine the best rate of savings:

Accepted Answer

Rules of thumb may not be accurate or reliable in all cases, but they can be useful guidelines when making decisions. Many rules of thumb have arisen over time through trial and error or observing successful outcomes. Therefore, a person who uses a rule of thumb to determine the best rate of savings is not necessarily making a mistake.

Question 11

The default effect:

Accepted Answer

The default effect refers to the fact that when confronted with many alternatives, people sometimes avoid making a choice and end up with the option that is assigned as a default. This is because people tend to have a psychological bias towards the default option, even if it is not the best choice for them.

Question 12

Behavioral economists view the standard economic theory of decisions involving time as being too restrictive because people:

Accepted Answer

All three options describe reasons why the standard economic theory of decisions over time can be too restrictive. Behavioral economists argue that the standard assumption that individuals always make rational decisions based on complete and accurate information does not match reality. Instead, individuals often have lapses in self-control, make systematic errors in forecasting the future, and are reluctant to abandon projects after incurring sunk costs.

Question 13

Which of the following explanations,if true,for the observation that 80% of your company's employees choose not to opt into the company's optional retirement plan would be the LEAST consistent with standard economic theory?

Accepted Answer

This explanation suggests that employees may be choosing the default option of not opting into the retirement plan rather than actively making a decision based on economic factors such as cost or return. This is inconsistent with standard economic theory, which assumes that individuals make rational decisions based on their preferences and available information. The other explanations (A, B, and D) all provide economic factors that could influence an individual's decision to opt into a retirement plan.

Question 14

Identified departures from perfect rationality include:

Accepted Answer

All of these choices are examples of departures from perfect rationality. Incoherent choices refer to situations where individuals make choices that contradict their own preferences. Bias towards the status quo occurs when individuals are more likely to stick to the current situation rather than opting for change, even if it may be more beneficial. Anchoring refers to the phenomenon where individuals rely too heavily on initial information when making decisions, without properly adjusting for new information. These departures from perfect rationality show that decision-making is not always entirely rational or optimal.

Question 15

Experiments:

Accepted Answer

The answer of Experiments:
...

Question 16

Anchoring occurs when:

Accepted Answer

Anchoring occurs when someone's choices are linked to prominent but patently irrelevant information, such as the first number presented in a negotiation or the initial price of a product. This irrelevant information then serves as a reference point for subsequent decision-making, even though it has no logical connection to the actual value or quality of the product or service being considered.

Question 17

Among the evidence that people do not always make choices that reflect sensible preferences are examples of:

Accepted Answer

Choice reversals refer to situations when people change their choices even though the underlying preferences have not changed. This indicates that people may not always make consistent or rational choices that reflect their true preferences. The other options, conformance to the principle of revealed preference and compliance with the Ranking Principle, suggest that people's choices do reflect their preferences, which is not always the case.

Question 18

Disadvantages of experiments include the fact that:

Accepted Answer

Laboratory experiments can introduce influences on decision making that are difficult to measure or control, which can affect the validity and generalizability of the results. The other options are incorrect.

Question 19

Behavioral economists:

Accepted Answer

Behavioral economists primarily rely on experimental data to understand how psychological factors affect economic decision-making.

Question 20

The endowment effect is reflected by indifference curves that are:

Accepted Answer

The endowment effect is reflected by kinked indifference curves, as it suggests that people value goods more when they own them, leading to a change in the slope of the indifference curve at the endowment point.

Quiz 13: Behavioral Economics

Behavioral economists:

Neuroeconomics is a new field of economics motivated by the speculation that studying the human neural system can lead to:

Which of the following does NOT describe an advantage of experiments?

Which of the following concepts should be LEAST associated with behavior economics?

The endowment effect:

Narrow framing:

Which of the following is true regarding the use of laboratory experiments in economic analysis?

Motivations for behavioral economics include:

A person who uses a rule of thumb to determine the best rate of savings:

The default effect:

Behavioral economists view the standard economic theory of decisions involving time as being too restrictive because people:

Which of the following explanations,if true,for the observation that 80% of your company's employees choose not to opt into the company's optional retirement plan would be the LEAST consistent with standard economic theory?

Identified departures from perfect rationality include:

Experiments:

Anchoring occurs when:

Among the evidence that people do not always make choices that reflect sensible preferences are examples of:

Disadvantages of experiments include the fact that:

Behavioral economists:

The endowment effect is reflected by indifference curves that are: