Deck 8: Behavioral Economics

Question 1

Because neoclassical economists assume that people are rational decision makers, they

A)are able to make better predictions about economic behaviors and outcomes.
B)ignore the mental processes by which these decisions are made.
C)believe that people never make suboptimal decisions.
D)believe it is best to limit the number of options people have available.

Answer 1

ignore the mental processes by which these decisions are made.

Question 2

Behavioral economists believe that people

A)assess current and future options equally well.
B)do not care about fairness, especially if it impairs their ability to get what they want.
C)make errors in decision making because of problems such as bad information, but such errors are random and generally not repeated by the same individual.
D)often succumb to temptation.

Answer 2

often succumb to temptation.

Question 3

Which of the following is not an implication of hardwired heuristics?

A)Getting people to make positive behavioral changes is about putting them in situations where heuristics kick in and lead them to the desired outcome.
B)Getting people to make better decisions is simply a matter of providing more information and more options.
C)People who know and understand hardwired tendencies of others can take advantage of situations.
D)Even when confronted with irrefutable information that a behavior is detrimental, people still may not change what they're doing.

Answer 3

Getting people to make better decisions is simply a matter of providing more information and more options.

Question 4

According to behavioral economists, the human brain frequently employs heuristics because

A)people have consciously trained their brains to do so.
B)these shortcuts minimize errors in decision making.
C)they produce more optimal outcomes than do rational calculations of benefits and costs.
D)they save energy and time in decision making.Gradable: automatic

Question 5

According to behavioral economics, advertising works because it

A)provides useful information that improves consumers' ability to make decisions.
B)exploits the self-serving bias.
C)exploits the recognition heuristic.
D)quickly communicates price changes that exploit the law of demand.

Question 6

Neoclassical economists generally believe which of the following about human behavior?

A)While individuals attempt to make rational decisions, poor computational skills often lead to systematic err ors.
B)People care a lot about fairness and are often willing to sacrifice some of their own well-being to treat others fairly.
C)When individuals make mistakes in decision making, they adjust to these errors and rarely repeat them.
D)When individuals are selfless and act for the good of others, the invisible hand guides the collective behaviors to promote the good of society.

Question 7

In the financial crisis that precipitated the 2007-2009 recession, people systematically overestimated their prospects for financial gain.Which branch of economics would most likely have expected to predict this?

A)neoclassical economics
B)Keynesian economics
C)behavioral economics
D)classical economics

Question 8

Which of the following statements is most accurate about human brain modularity?

A)System 1 uses heuristics, while system 2 is more calculating; both are equally important in decision making.
B)Both systems regularly use both heuristics and conscious calculations; both are equally important in decision making.
C)System 1 uses heuristics, while system 2 is more calculating; system 2 regularly overcomes system 1's heuristics to make decisions.
D)System 1 uses heuristics, while system 2 is more calculating; most decisions are made by system 1.

Question 9

Behavioral economists believe that the human brain is generally

A)efficient and accurate.
B)efficient but prone to err ors.
C)inefficient but accurate.
D)inefficient and prone to errors.

Question 10

Heuristics

A)are rules of thumb that generate decisions that generally maximize net benefits.
B)take a long time to develop and are therefore avoided by rational decision makers.
C)are shortcuts that save time and energy in decision making.
D)always waste mental resources by leading people to suboptimal outcomes.

Question 11

Which of the following statements best reflects how a behavioral economist views individual decision making?

A)Alex makes wrong decisions sometimes, but usually it is only when he has been given bad information.
B)Kara carefully calculates and weighs the expected benefits and costs of ever y option before making a decision.
C)Alyssa may appear to care about others, but even her seemingly altruistic behaviors are really about furthering her own interests.
D)Balin tries to make good, well-thought-out decisions, but his desire for utility in the present means that he often gives in to costly temptations.

Question 12

Which of the following sets of personal characteristics best reflects what behavioral economists assume about how people make decisions?

A)People are irrational, are prone to systematic errors, have stable preferences, and care about fairness.
B)People are rational, adjust for err ors, have stable preferences, and easily resist temptation.
C)People care deeply about fairness, eagerly and accurately calculate ways to help others, assess future and present options equally well, and resist temptations in their selflessness.
D)People have preferences that depend on context, avoid and are bad at computation, often give in to temptation, and are often selfless in their behavior.

Question 13

Susie knows that too many sugary treats, while delicious when eaten, have long-term adverse effects on weight and health.Based on this information, a behavioral economist would expect Susie to

A)carefully weigh the short-term benefits against the long-term costs and make a rational decision about how many treats to eat.
B)eat more sugary treats than is optimal, as she likely gives more weight to present events and outcomes than to ones in the future.
C)give awa y most of her sugary treats in an effort to resist temptation.
D)compute the caloric intake and calculate how many hours of exercise would be needed to burn off the calories from each treat.

Question 14

Which of the following supermarket strategies to increase sales would be most consistent with a neoclassical economics (versus behavioral economics) approach?

A)holding posted prices constant but reducing package sizes
B)providing discounts for buying in bulk
C)placing the most frequently purchased items at the back of the store
D)positioning high-profit kids cereals on the lower shelves of the cereal aisle

Question 15

Which of the following would represent a systematic error?

A)Eddie regularly overspends.Friends and family bail him out, however, so he always ends up with what he wants.
B)Ellen paid good money for a used car that is in constant need of repair.
C)Sparky determines that he has to reduce donut consumption to lose weight but always ends up eating the ones provided in the break room at work.
D)Clark makes regular math err ors at work, sometimes coming out with figures too high, other times too low.

Question 16

What do neoclassical economics and behavioral economics believe about giving people options?

A)Both believe that people make better decisions when they are given a greater set of options.
B)Behavioral economics focuses on providing more options; neoclassical economics focuses on helping people make more rational decisions with the options available.
C)Neoclassical economics focuses on providing more options; behavioral economics focuses on helping people make better decisions with the options available.
D)Both believe that people are better off with fewer options, allowing them to spend more time calculating the benefits and costs of each available option.

Question 17

Which of the following supermarket strategies to increase sales would be most consistent with a behavioral economics (versus neoclassical economics) approach?

A)distributing online coupons
B)providing discounts for buying in bulk
C)positioning frequently purchased items at the back of the store
D)offering price matching with other stores

Question 18

According to behavioral economists, the human brain

A)makes most decisions based on careful calculation of benefits and costs.
B)uses evolutionary-developed heuristics to make many decisions.
C)only develops heuristics for decision making after the same decision has been made multiple times using a rational framework of comparing benefits and costs.
D)employs heuristics in decision making that are slow but generally error free.

Question 19

Why, according to behavioral economics, would supermarkets place gum, candy, and other small convenience items near the cash registers?

A)Those are the shelving locations that minimize costs.
B)Stores try to make frequently purchased items quicker and easier for consumers to access.
C)Smaller items tend to fall through shopping cart holes, so stores reduce that problem for consumers by having smaller items at the checkout stands.
D)Many of these are small items that people will buy on an impulse.

Question 20

Which of the following best explains the difference between neoclassical economics and behavioral economics?

A)Neoclassical economics believes that government should play a minimal role in the economy, while behavioral economics calls for a more active role for government.
B)Neoclassical economics assumes that people are rational in their decision making, while behavioral economics believes people make systematic errors.
C)There is no real difference; behavioral economics just studies more intently how the rational decision-making process works.
D)Neoclassical economics no longer offers valid explanations for economic outcomes, while behavioral economics does.

Question 21

Specialty shops can charge and get customers to pay higher prices for identical goods than they would pay in "big box" stores.Assuming that these differences are driven by store appearance rather than differences in services provided, which of the following best explains this phenomenon?

A)availability heuristics
B)framing effects
C)confirmation biases
D)self-serving biases

Question 22

John's friend Rosika won a major lottery jackpot.Seeing this, John goes out and buys a bunch of lotter y tickets despite struggling financially and even though he knows that millions don't win and that the odds of winning are infinitesimal.John's decision to buy the lotter y tickets under these circumstances would best be explained by the

A)hindsight bias.
B)self-serving bias.
C)confirmation bias.
D)availability heuristic.

Question 23

Last month Laura saw the value of her stock portfolio rise by $20,000.This month she saw the value of her portfolio decline by $20,000.According to behavioral economics,

A)the positive utility Laura received from seeing her portfolio value rise was equal to the disutility she felt when its value declined.
B)Laura should not invest in stocks unless the utility she receives from gains is at least as great as the disutility she feels from losses.
C)the positive utility Laura received from seeing her portfolio value rise was greater than the disutility she felt when its value declined.
D)the positive utility Laura received from seeing her portfolio value rise was less than the disutility she felt when its value declined.

Question 24

According to behavioral economics,

A)gains are felt more intensely than losses.
B)each successive unit of loss is equal in its marginal disutility.
C)each successive unit of loss hurts, but less than the previous unit.
D)each successive unit of loss hurts, and more than the previous unit.

Question 25

According to behavioral economics, cognitive biases

A)create errors in decision making, but these errors are random and follow no particular pattern.
B)occur but are not prevalent enough to distort the behavioral predictions of neoclassical economics.
C)are misunderstandings or misperceptions that cause systematic error.
D)are solely the result of faulty heuristics.

Question 26

Josh will receive a salar y of $300,000 next year.According to prospect theory,

A)Josh will be happy with that amount regardless of what he has made in the past.
B)Josh will only be happy with that salary if everyone else around him makes less than he does.
C)Josh will only be happy with that salary if his cost of living has not increased.
D)Josh's satisfaction with that salar y depends on how much he made in the past.

Question 27

Dan was certain that his upcoming economics test would be so easy that he could wait to study until the night before and still do well on the exam.When he cracked open his book and notes the night before the exam, he realized he should've started studying earlier.According to behavioral economics, Dan's error was caused primarily by

A)a planning fallacy.
B)an overconfidence effect.
C)framing effects.
D)hindsight bias.

Question 28

Suppose that Dair y Barn Foods produces a regular sour cream with 10 grams of fat per serving and a "low fat" sour cream with only 5 grams of fat per serving (assume that this is still considered a lot of fat to consume per serving).According to prospect theory, how should Dairy Barn promote its "low fat" sour cream?

A)It should make no mention of fat content, either in absolute terms or relative to its regular sour cream.
B)It should advertise that the "low fat" sour cream has only "half the fat" of the regular sour cream.
C)It should advertise that the "low fat" sour cream has only 5 grams of fat per serving.
D)It won't matter what strategy Dairy Barn uses, as consumers are sufficiently informed as to not be affected by the advertising.

Question 29

When people convince themselves that they "knew all along" what was going to happen, when in fact their predictions wer e incorrect, they suffer from

A)overconfidence bias.
B)self-serving bias.
C)framing bias.
D)hindsight bias.

Question 30

Which of the following is the best example of a System 2 decision and action?

A)Marty learns that his usual driving route to work will have significant delays due to construction but forgets and goes that way anyway.
B)Doug eats a whole plate of nachos despite the fact it compromises his carefully planned diet.
C)Bruce "goes with his gut" when choosing between two kinds of motorcycles to purchase.
D)Chuck, who has contemplated a job change for a month and has other offers, chooses to quit when his boss makes him mad.

Question 31

According to the concept of framing effects,

A)advertising power is limited because of the inability of firms to change consumers' perspectives.
B)all people will assign the same utility to a given situation, regardless of their previous status quo.
C)whether a new situation is viewed as a gain or a loss depends on one's starting position.
D)firms should never raise prices or reduce wages.

Question 32

Fatal automobile accidents occur much more frequently than do fatal airplane crashes, yet airplane crashes receive a disproportionate amount of media coverage.As a result, some people are overly fearful of flying in planes yet have no problem riding in cars.Which of the following cognitive biases best explains this disconnect between these people's fears and the statistical realities?

A)overconfidence effect
B)availability heuristic
C)self-serving bias
D)confirmation bias

Question 33

Augi carefully plans out an early morning exercise routine to lose weight and get fit.When it's time to work out, however, Augi just "doesn't feel up to it" and decides to sleep in.Behavioral economics would say that Augi

A)weighed the costs and benefits and made a rational economic decision to sleep in.
B)used System 1 of her brain to formulate her workout plan, but then gave in to System 2 when she chose to sleep in.
C)used System 2 of her brain to formulate her workout plan, but then gave in to System 1 when she chose to sleep in.
D)is fundamentally lazy and incapable of sticking to a workout plan.

Question 34

The process by which people isolate purchases and fail to consider all consumption options simultaneously is known as

A)framing.
B)mental accounting.
C)anchoring.
D)the endowment effect.

Question 35

Dorothy likes to invest in gold as part of her overall financial investment portfolio, as her gut tells her it will increase dramatically in value.Her favorite and generally only source of investment advice is Wizard's Gold Hour on the OZ cable channel.As a result of this advice, Dorothy's portfolio mix is suboptimal, as it is too heavily weighted in gold.Behavioral economists would say that Dorothy suffers from

A)framing effects.
B)confirmation bias.
C)self-serving bias.
D)planning fallacy.

Question 36

Because of "mental accounting,"

A)people are better able to process price changes than changes in product sizes.
B)people tend to be less risk averse.
C)people pay too little on their monthly credit card bills.
D)people isolate purchases and sometimes make irrational decisions.

Question 37

Why do credit card companies typically require small minimum payment amounts on their customers' monthly credit card statements?

A)Credit card companies are concerned that their customers will be put in financial distress if required to make higher payments.
B)Credit card companies want to promote faster repayment, and customers will be encouraged to pay more each month if they're able to pay well beyond the minimum.
C)Credit card companies want to increase profits by promoting slower repayment, and actual customer payments will be anchored by the smaller payment requirements.
D)Credit card companies actually charge the highest minimum payment they are allowed by law to charge.

Question 38

Whenever Josh goes to his favorite restaurant, he wants to buy tiramisu, his favorite dessert.Despite the fact that he would enjoy the flavor of the tiramisu the same amount ever y time, Josh only buys it when others are having dessert and never buys it if he would be the only one having dessert.Behavioral economists would say that Josh's decision is affected by

A)the availability heuristic.
B)confirmation biases.
C)framing effects.
D)the self-serving bias.

Question 39

Which of the following cognitive biases refers to people's tendency to attribute their successes to personal ability and effort, and failures to forces outside their control?

A)overconfidence effect
B)confirmation bias
C)self-serving bias
D)hindsight bias

Question 40

According to prospect theory, what strategy will firms typically employ with regard to pricing and packaging of their goods, when faced with rising production costs?

A)Firms will increase both package sizes and prices but will increase prices more to communicate to consumers that the product has greater value.
B)Firms will reduce package sizes but keep prices the same, thus increasing the per unit price of the good.
C)Firms will keep package sizes the same but lower prices and attempt to cover the higher costs with greater revenue.
D)According to prospect theory, the choice of strategy doesn't matter, as consumers are generally able to recognize price increases regardless of what form they take.

Question 41

"Time inconsistency" refers to the

A)tendency for policies with high short-run benefits to have high long-run costs.
B)fallacy that what is true for the short run must be true for the long run.
C)tendency to regularly misjudge in the present what you will do in the future.
D)tendency to misjudge how long it will take to accomplish a future task.

Question 42

Bucky and Satchel are offered identical jobs, each paying $80,000 per year.According to behavioral economics,

A)they should feel equally good about the job offer.
B)how each will feel about the job offer will depend on their current positions and incomes.
C)if Bucky's current income is $60,000 per year, and Satchel's is $70,000 per year, we would expect Bucky to receive twice as much additional utility from taking the job as Satchel would.
D)if the jobs will not change their income, they are more likely to switch jobs than remain with the status quo.

Question 43

Adam and Brittany both recently started new jobs.Both have determined that they should save 10 percent of their monthly income toward retirement.Adam's employer has no program established for payroll deduction, but he could easily set up automatic withdrawals to go into a retirement fund.Brittany's employer automatically directs 8 percent of the paycheck into a retirement fund, but the employee can change the percentage deducted.Behavioral economists would expect

A)Adam to save more, as he would set up a 10 percent automatic withdrawal, while Brittany would stay at the default of 8 percent.
B)Brittany to save more, as both would tend to stay at the defaults provided by their employers.
C)them both to save 10 percent eventually, as both had predetermined that that was the optimal amount to save.
D)Brittany to feel a greater sense of loss by seeing funds automatically withheld each month.

Question 44

Credit card companies require low minimum payments that impose significant interest costs on consumers choosing to pay the minimum.Recent legislation has required credit card companies to show on customer billing statements how much interest would be paid and how long it would take to repay the current balance if only the minimum is paid.Behavioral economists would expect this legislation to

A)substantially increase monthly payments, as consumers make better decisions when they have more information.
B)overcome the status quo bias that keeps people paying the minimum.
C)cause credit card companies to increase the minimum payments.
D)have little effect, as anchoring would keep many people paying the minimum.

Question 45

Fairness, according to behavioral economics,

A)is too subjective to be considered in the analysis of economic behavior.
B)can be objectively standardized across individuals.
C)varies from one individual to another but still affects economic behavior in important ways.
D)matters to people, but because of self-interest, fairness has little effect on their economic decisions.

Question 46

Which of the following individuals least likely suffers from myopia?

A)Marilyn, who struggles to lose weight because she regularly cheats on her diet.
B)Myrna, who lived through the Great Depression and tends to spend frugally and save most of her money.
C)Malcolm, who currently spends all his income and saves nothing for retirement.
D)Marvin, who regularly sleeps in and is constantly late for work, much to the chagrin of his boss.

Question 47

According to behavioral economists, self-control problems

A)are a rare aberration from rational decision making.
B)are often caused by time inconsistency.
C)can be easily overcome by providing decision makers with better information.
D)occur frequently but have no impact on the ability of neoclassical models to predict economic outcomes.

Question 48

According to behavioral economists, someone suffering from myopia is most likely to

A)spend too little on present consumption and save more than is necessary for the future.
B)vote only for economic policies that serve his or her short- and long-term interests.
C)rely too much on System 2 of the brain.
D)spend too much on present consumption and not save enough for the future.

Question 49

According to the "endowment effect,"

A)people are willing to pay more for things they don't own than they would have to receive to give up something they already have.
B)people feel gains and losses with equal intensity.
C)people assign higher values to things they own than things they don't.
D)the intensity of feelings from gains and losses depends on how much wealth one possesses.

Question 50

Junior collects baseball cards.He owns one Felix Hernandez card that sells in most shops for $15.He is interested in buying a different Felix card that also sells for $15.According to behavioral economics,

A)Junior should value the two cards equally and be willing to trade one for the other.
B)the availability heuristic will cause Junior to value more highly the card he doesn't have.
C)the endowment effect would suggest that Junior would not be willing to trade the card he has for the card he doesn't have.
D)prospect theory says he will buy the second card, as both have the potential to appreciate in value.

Question 51

Thea committed a traffic violation that resulted in an accident.She learns first that the violation will result in a $500 fine; she then learns that she will have to pay another $500 for damage caused in the accident.According to prospect theory,

A)she will suffer as much disutility from paying for the accident damage as she does from paying the fine.
B)she will suffer less disutility from paying for the accident damage than from paying the fine.
C)she will suffer more disutility from paying for the accident damage than from paying the fine.
D)she will feel less disutility from paying $1,000 than she would receive positive utility from receiving $1,000.

Question 52

For economists, "myopia" refers to

A)visual nearsightedness.
B)people's difficulty in conceptualizing the future.
C)people's tendency to put too much emphasis on the future and ignore important present concerns.
D)people's tendency to focus on microeconomic concerns because of an inability to conceptualize macroeconomics.

Question 53

According to prospect theory, people tend to favor default options.This is known as the

A)self-serving bias.
B)availability heuristic.
C)status quo bias.
D)framing bias.

Question 54

Internationally, participation differences in organ donation programs are mostly attributed to

A)cultural views.
B)financial compensation for organ donors.
C)what default option is set for participation or nonparticipation.
D)living standards as measured by per capita GDP.

Question 55

When Lucian starts his new job, he is given the option to contribute to his retirement fund, which the company will match up to 5 percent of his base salary.Lucian knows he can afford to contribute to his retirement fund; he only needs to file a form to activate the contributions and matching.According to prospect theory, if Lucian is typical in his behavior, we would expect him to

A)take full advantage of the matching contribution because that would maximize his financial well-being.
B)not file the form to start the contribution and match.
C)negotiate with his boss for a higher match in order to increase his returns.
D)only start contributions if the retirement portfolio is heavily weighted in high-return assets.

Question 56

Salar y smoothing, automatic payroll deductions, and early withdrawal penalties are all examples of

A)mechanisms imposed by companies to extract more from their workers and customers.
B)policies that do not fundamentally alter decisions because they do not change the benefits or costs of an action.
C)precommitments.
D)hardwired heuristics.

Question 57

A company has designed an alarm clock that "runs and hides" after going off, forcing the person to get up and find the alarm clock if he or she wants to shut off the alarm.According to behavioral economists,

A)it is unlikely to alter people's tendency to shut off the alarm and ultimately oversleep.
B)the alarm clock keeps people from hitting the snooze button and taking advantage of the availability heuristic.
C)the alarm clock serves as a precommitment device, helping the user to stick to the originally planned wake-up time.
D)overconfidence effects will discourage use of such devices.

Question 58

Al regularly pays the full amount of taxes due, even though he could easily hide some of his income and reduce his tax burden, with no risk of getting caught.According to behavioral economics,

A)Al is not economically rational in his behavior.
B)fairness and other moral considerations cause Al to act contrary to his pure self-interest.
C)Al is more ethical than the majority of the population.
D)heuristics are causing Al to act honorably, not a conscious or deliberative thought process.

Question 59

Which of the following statements best reflects behavioral economists' views on self-interest versus the interests of others?

A)Self-interest dominates human behavior; even seemingly selfless behavior is driven by self-interest.
B)Most people care so deeply about others that self-interest is a minor consideration in their decision making.
C)The system is most efficient when people focus solely on their self-interest and allow the invisible hand to work out what is best for society.
D)People are always self-interested to a degree, but their behavior is also affected by moral and ethical considerations.

Question 60

Balin purchases fair trade cocoa out of concern for workers' rights and environmental sustainability.He could purchase cocoa of equal quality at a lower price.Behavioral economists would consider Balin's purchase

A)unusual in that it demonstrates concern for others.
B)purely self-interested but motivated by something other than his financial well-being.
C)as evidence that Balin is not acting purely in his self-interest.
D)a bad decision because it ignores important information that could improve Balin's well-being.

Question 61

(Consider This) Kara was earning $40,000 per year.When her income rose to $60,000 per year, she enjoyed the higher level of consumption for a while, but eventually she was no more happy than when she earned $40,000 (assume prices didn't change over this time period).Economist Richard Easterlin described this as

A)anchoring.
B)the endowment effect.
C)irrational economic behavior.
D)the hedonic treadmill.

Question 62

Natural disasters often cause shortages of critical supplies.What outcomes would neoclassical and behavioral economics typically predict from these events?

A)Both would expect prices to rise significantly, whether from market forces or from self-interest overwhelming any sense of compassion for others.
B)Both would expect sellers to keep prices unchanged, whether to keep customers happy long-term or out of a sense of fairness.
C)Neoclassical economists would expect economic chaos and collapse, while behavioral economists would expect everyone to act cooperatively.
D)Neoclassical economists would expect prices to rise dramatically as a natural result of the greater scarcity, and behavioral economists would expect prices to increase less or not at all as people try not to take advantage of the situation.

Question 63

The threat of rejection in market transactions

A)leads to better products for consumers.
B)leads to lower prices for consumers.
C)leads to greater cooperation between buyers and sellers.
D)does all of these.

Question 64

Carlos and Darla are playing the dictator game.Carlos is assigned the role of dictator and given $20 to split between the two of them.Based on previous experiments with this game, if Carlos is a typical player, behavioral economists would expect

A)Carlos to keep all of the money for himself.
B)Carlos to give all of the money to Darla.
C)Carlos to split the money evenly with Darla.
D)Carlos to split the money, keeping a little more than half for himself.

Question 65

(Consider This) The hedonic treadmill refers to a phenomenon where

A)people can't improve their economic well-being because prices increase as fast as wages.
B)people can't get out of debt because credit card companies use anchoring to get consumers to carr y large balances on their accounts.
C)increasing our level of consumption doesn't make us any happier in the long term.
D)feelings of loss offset our feelings of gain, leaving us no happier in the long term.

Question 66

The threat of rejection in market transactions

A)leads to higher prices, as sellers try to cover possible losses.
B)leads to better products and lower prices for consumers.
C)leads to less cooperation between buyers and sellers.
D)does all of these.

Question 67

The ultimatum game reveals that the threat of rejection

A)weakens the functioning of the invisible hand.
B)reduces cooperation.
C)increases selfish behavior.
D)helps align private interests with social interests.

Question 68

The dictator game

A)reveals nothing important about economic behavior because the money used is hypothetical.
B)demonstrates that people care about fairness and will sacrifice financially for others.
C)demonstrates nothing definitive about fairness, as concerns about the other player's perceptions will influence the dictator's choices.
D)regularly results in the dictator taking all of the money for him/herself, as economic theory would predict.

Question 69

(Consider This) According to the piece "Wannamaker's Lament," how have firms responded to the evidence that most advertising campaigns have little impact on sales?

A)Firms have substantially cut their advertising budgets to focus more on product quality.
B)Firms have substantially increased their advertising budgets in order to hit the spending threshold necessar y to affect sales.
C)Firms have substantially cut their advertising budgets to focus more on new product development.
D)Firms have conducted a lot of simple experiments to determine what might increase sales.

Question 70

(Consider This) Solar City helped homeowners overcome their myopia by

A)providing improved information about the benefits of solar systems.
B)framing the installation of solar systems against the environmental costs of nonrenewable energy sources.
C)eliminating the upfront costs of solar systems.
D)appealing to homeowners' sense of fairness with regard to environmental responsibility.

Question 71

When the ultimatum game is played for larger rather than smaller amounts of money, behavioral economists have found that when the proposed splits are ver y uneven

A)responders are much more likely to accept the offer because of the amount of money involved.
B)responders are no more likely to accept the offer if they consider the split to be unfair.
C)responders are much less likely to accept the offer, because their sense of unfairness is heightened with larger amounts of money.
D)responders will accept offers at a higher rate but will exact greater emotional penalties on the proposer.

Question 72

Suppose Gina and Henry play two rounds of the ultimatum game.In the first round they play for $10; in the second round they play for $1,000.In the first round Gina suggests an 80/20 split ($8 to Gina, $2 to Henry), but Henry quickly rejects the offer as unfair.Assuming Gina is interested in gaining financially from the experience and that she understands behavioral economics, we would expect her to

A)offer the same relative split ($800/$200), knowing that Henry will accept the offer because the dollar amount he would forgo by rejecting it is substantial.
B)offer a more unequal split ($900/$100) in order to gain more for herself and figuring Henry will accept the split because $100 is better than nothing.
C)offer a more equal split ($700/$300) to increase the probability that Henry will accept the offer.
D)offer Henry more than half of the pot to ensure acceptance of the offer.

Question 73

The results of running the dictator game experiments thousands of times have revealed to behavioral economists that

A)people's sense of fairness is fairly uniform across the population.
B)most people have little concern for others when it comes to financial matters.
C)individual feelings about fairness and generosity vary widely across the population.
D)most people are willing to give more than they will keep for themselves.

Question 74

Selfishness is

A)exhibited more strongly in the ultimatum game than in the dictator game.
B)exhibited more strongly in the dictator game than in the ultimatum game.
C)exhibited equally strongly in both the ultimatum and dictator games.
D)rarely exhibited in either the ultimatum or dictator games.

Question 75

(Consider This) In sunny parts of the country, solar panels generate net financial benefits in just a few years, despite having high installation costs.Despite their long-run profitability, the high upfront costs discourage many from installing solar panels.From a behavioral economics perspective, this is the result of

A)myopia.
B)time inconsistency.
C)status quo bias.
D)the endowment effect.

Question 76

Which of the following is a significant difference in the outcomes between the dictator game and the ultimatum game?

A)There is little difference, as fairness considerations lead to similar splits of the money in both games.
B)The dictator game tends to result in a more even split of the money.
C)The ultimatum game tends to result in a more even split of the money.
D)Self-interest is revealed more strongly in the ultimatum game than in the dictator game.

Question 77

Suppose Gina and Henry play two rounds of the ultimatum game.In the first round they play for $10; in the second round they play for $1,000.In the first round Gina suggests an 80/20 split ($8 to Gina, $2 to Henry), but Henry quickly rejects the offer as unfair.If in the second round Gina offers the same split ($800 to Gina, $200 to Henry), research by behavioral economists suggests that Henry will

A)accept the offer because the dollar amount he would forgo by rejecting is substantial.
B)counteroffer with a more even split.
C)weigh the offer much more carefully because of the dollar amounts involved but ultimately reject the offer.
D)exhibit a stronger negative reaction than the first time and ultimately reject the offer.

Question 78

Which of the following is a key difference between the dictator game and the ultimatum game?

A)The dictator game is played with real money; the ultimatum game is played with hypothetical money.
B)In the dictator game, one person has total control over the split; in the ultimatum game, both players have to agree to the split.
C)Results of dictator game experiments reveal that people don't care about fairness; results of the ultimatum game indicate that they do care.
D)There is no difference between them; they are simply different names for the same game.

Question 79

Carlos and Darla are playing the dictator game.Carlos is assigned the role of dictator and given $20 to split between the two of them.Based on previous experiments with this game by behavioral economists, which is the least likely outcome?

A)Carlos will keep all of the money for himself.
B)Carlos will give all of the money to Darla.
C)Carlos will split the money evenly with Darla.
D)Carlos will split the money, keeping a little more than half for himself.

Question 80

(Consider This) According to the piece "Wannamaker's Lament,"

A)price tags are inefficient signaling mechanisms.
B)money-back guarantees are costly to firms because they don't increase sales but do increase costs.
C)most marketing efforts have little impact on sales.
D)only 50 percent of new consumer products fail within the first year.