Question 1

In the movie The Hunt for Red October,Captain Ramius (Sean Connery)leaves a letter for the Soviet Navy announcing that he intends to defect to the United States.As a result,the Soviet Navy launches a massive effort to find and sink Ramius's ship,the Red October.In announcing that he was intending to defect,Capt.Ramius's actions could be explained as

Accepted Answer

By announcing his intention to defect, Captain Ramius removes the possibility of returning to the Soviet Union and increases the likelihood of a successful defection to the West. This action serves as a commitment device, making it harder for him to back out of his decision to defect or for the Soviet Union to try to persuade him to return.

Question 2

People find it easier to commit to saving for retirement from next year's salary as opposed to current salary.This behavior is consistent with hyperbolic discounting of income.

Accepted Answer

Hyperbolic discounting refers to the tendency to prioritize immediate rewards over future rewards, even if the future rewards are greater. In the context of retirement savings, this means that people may find it easier to commit to saving a portion of their future salary rather than a portion of their current salary, since the future salary is further away and may not feel as real or tangible as the current salary. This behavior is consistent with hyperbolic discounting.

Question 3

Under hyperbolic discounting,a person discounts the long term future more heavily than the near term future.

Accepted Answer

Under hyperbolic discounting, the value of a reward decreases more drastically as the time to receive it increases in the near future, but the same value of reward seems less significant when the time to receive it is far in the future. This means that people tend to heavily discount long-term benefits in favor of immediate rewards.

Question 4

Deb plans and prepares her meals 1 month in advance.Scott eats out for lunch every day.According to observations from behavioral economics,Scott will eat more varied meals than Deb.

Accepted Answer

Behavioral economics suggests that people who plan and prepare their meals in advance, like Deb, can choose a wide variety of meals when planning for a month, whereas Scott, eating out every day, might fall into a pattern of choosing similar types of meals due to convenience or habit.

Question 5

Psychologists and behavioral economists argue that preferences are "discovered," as opposed to a preexisting guide to choice.

Accepted Answer

Psychologists and behavioral economists believe that preferences are developed over time through experiences and interactions with stimuli, rather than being predetermined. This view suggests that preferences can change and adapt with new information and opportunities.

Question 6

A stingy health maintenance organization (HMO)gives its customers diagnosed with cancer a choice between surgery and radiation therapy,but not both.The brochure they send to their customers describes surgery as 80% successful,but says that 2 out of 10 patients who choose radiation will die.If customers were given a choice between surgery and radiation therapy,which of the following scenarios would most likely occur?

Accepted Answer

The answer of A stingy health maintenance organization (HMO)gives its...

Question 7

If a tennis player were truly randomizing over which half of the court to serve to,she would never serve to the same side of the court 5 times in a row.

Accepted Answer

Randomization includes all possible sequences, including serving to the same side of the court 5 times in a row, though it might be unlikely.

Question 8

In a study by financial economists Brad Barber and Terrance Odeank of stock portfolio management techniques and returns,men trade more frequently on average than women,and as a result of more active management,men's portfolios grow at a higher rate of return than women's.

Accepted Answer

The statement is not entirely accurate. While Barber and Odean's study did find that men trade more frequently than women, they also found that this active management leads to lower returns for both men and women. Therefore, neither gender's portfolio may necessarily grow at a higher rate of return.

Question 9

Which of the following are examples of the framing effect?

Accepted Answer

Option A is an example of the framing effect because the default choice of contributing results in more funds than the default choice of not contributing, even though the decision to contribute or not should be independent of the default. Options B, C, and D are not examples of the framing effect but may fall under other cognitive biases.

Question 10

Using lessons learned from behavioral economists,which of the following would be most likely to increase retirement savings?

Accepted Answer

Enabling automatic deductions from paychecks is a well-established practice to increase retirement savings. However, the addition of the option to commit to an increasing portion of their paycheck being automatically deposited in retirement savings in future years utilizes the concept of "nudges." This strategy is more likely to increase retirement savings as it fosters the idea of gradual increase in saving habits, which is a more acceptable idea to individuals than immediate, drastic change.

Question 11

People who have recently become unemployed often believe the national unemployment rate is higher than it actually is.Behavioral economists would attribute this to

Accepted Answer

The law of small numbers refers to the tendency to apply small-sample statistics to infer the properties of the larger population. This can lead individuals who have recently become unemployed to overestimate the national unemployment rate because they are extrapolating from their own small sample size of unemployed individuals.

Question 12

The following statement is a defense of conventional models of consumer behavior against the objections of behavioral economists: Even if many participants in a market do not behave rationally,those who consistently maximize utility will have the greatest effect on market prices and outcomes.

Accepted Answer

This statement is true. Even if some consumers do not behave rationally, the actions of those who consistently maximize their utility will still have a significant effect on market prices and outcomes. Therefore, conventional models of consumer behavior can still provide valuable insights into market behavior, despite the criticisms of behavioral economists.

Question 13

A house was for sale for 9 months with no offers at $350,000.It was taken off the market,and relisted 1 month later at $399,500 and sold in 2 weeks.Which of the following behavioral economic concepts could explain this scenario?

Accepted Answer

The scenario could be explained by framing effects, where the perception of the value of the house changed based on its initial price and subsequent increase. The initial price of $350,000 may have been perceived as too high, but when it was relisted at $399,500, it may have been perceived as a better deal, leading to increased interest and a sale within two weeks.

Question 14

With several additional mutations,the bird flu,whose victims to date are mostly poultry,could become a global epidemic.Suppose there are 2 possible courses of action public health officials could take.For treatment A,the lives of 1 million people out of the 10 million affected would be saved.For treatment B,90% of those infected would not be helped and would die.If infected persons were given a choice between treatments A and B,which of the following scenarios would most likely occur?

Accepted Answer

The answer of With several additional mutations,the bird flu,whose victims...

Question 15

A couple planning to get married wants to do all that they can to make their marriage last.To help,they should consider having

Accepted Answer

The answer of A couple planning to get married wants...

Question 16

Professor Bob has an incredibly messy office,and really wants to change but just can't.Professor Bob just read his first book about behavioral economics.To help him keep his office more neat,Professor Bob could hire

Accepted Answer

A custodial service that only cleans when Professor Bob's office needs it will create a financial incentive for him to keep his office more organized and less messy. As he will be billed each time the custodial service comes, he will not want to waste money on unnecessary cleanings. This method also allows him to have a clean office without feeling like he is losing his investment, as the service is only used when it's necessary. Consequently, This is the most effective and reasonable option.

Question 17

Nash equilibria can be used to make predictions about human behavior in noncooperative games.Behavioral game theory studies actual human interaction,and has found inconsistencies between observed human behavior and Nash-predicted behavior.Which of the following is NOT an inconsistency pointed out by behavioral economists?

Accepted Answer

The inconsistency pointed out by behavioral economists is that proposers often offer more than the minimum possible split, even when it is not necessary to do so to get the responder to accept the offer.

Question 18

In practice,people tend to accept too many large risks (such as forgoing life insurance)and avoid too many small risks (such as losing or breaking a cell phone).

Accepted Answer

This is a well-documented phenomenon known as "probability neglect" or "possibility neglect." People tend to underestimate the likelihood of rare but catastrophic events (such as death) while overestimating the likelihood of more common but less severe events (such as losing a cell phone). This can lead to irrational decision-making and suboptimal risk management strategies.

Question 19

If a coin is tossed,and the results are 6 consecutive tails (TTTTTT),this is conclusive evidence that the coin is not a fair coin.

Accepted Answer

Each toss of a fair coin is an independent event, and getting 6 consecutive tails is unlikely but not impossible. It does not conclusively prove the coin is biased.

Question 20

According to behavioral economists,rational consumers are able to make decisions when faced with many choices because preferences are complete.

Accepted Answer

Behavioral economists argue that humans do not always make rational decisions, even when faced with complete preferences. They may be influenced by cognitive biases or heuristics, and may struggle with decision overload or information asymmetry.

Quiz 31:Behavioral Economics-Part A