Deck 23: Public Policy and Choice Architecture

Question 1

By studying the effects of choice architecture, we can:

A)expand the simplifying assumption that people always make the choices that are best for themselves.
B)blend the ideas of psychology with core economic beliefs.
C)be open to the possibility that we can no longer tell if someone is making a mistake or choosing something that is maximizing his utility.
D)All of these are true.

Answer 1

All of these are true.

Question 2

The Save More Tomorrow (SMarT)program offers employees the option to commit a fraction of future pay raises to a tax-free retirement savings account. Which of the following was not a finding of this program?

A)People want to save more than they typically do.
B)Participants quadrupled their savings in just a couple of years.
C)If the default choice is to save a portion of income, people will save more.
D)People were already saving at an optimal amount, so the program had no effect.

Answer 2

People were already saving at an optimal amount, so the program had no effect.

Question 3

When considering choice architecture, a nudge:

A)only provides participants with choices that are good for them.
B)can sometimes accomplish public policy goals in a less expensive way than traditional methods.
C)presents choices that are similar to, but more equitable than, participants' ideal choices.
D)is a deliberate push by a choice architect to ensure all people behave a certain way.

Answer 3

can sometimes accomplish public policy goals in a less expensive way than traditional methods.

Question 4

A choice architect is someone who:

A)determines which choices are available to builders in a specific area.
B)designs areas that have a lot of choices in determining how the space is used.
C)is in a position to shape the decision-making environment.
D)determines how people should make decisions inside of a specific environment.

Question 5

The SMarT program, which offers employees the option to commit a fraction of future pay raises to a tax-free retirement savings account, is designed to overcome which common barrier to saving? Status quo bias An unwillingness to forgo current consumption The endowment effect

A)II and III only
B)I and III only
C)I and II only
D)I, II, and III

Question 6

Which of the following is not a traditional economic view regarding choice architecture?

A)There is no such thing as a bad choice.
B)Choice architecture is ineffective.
C)Revealed preference shows researchers what an individual's preferred choices are.
D)Choice architects have a responsibility to remain neutral when it comes to choices.

Question 7

Status quo bias is:

A)when a person's choice is influenced by others' opinions.
B)a reluctance to make active decisions to change something, even if it is fairly easy to do so.
C)an unwillingness to change future decisions to match current choices.
D)All of these are true.

Question 8

Status quo bias:

A)is a type of mental barrier to saving.
B)occurs when people actively make decisions to change, even if it is fairly difficult to do so.
C)is when people exhibit when they change their behavior to match others around them.
D)occurs when people have a negative view on the status quo.

Question 9

Neutral policy with respect to choice architecture is:

A)not a clear concept in most choice scenarios.
B)well established in all choice scenarios.
C)the goal of all choice architects.
D)generally regulated by state and federal government.

Question 10

Choice architecture focuses on factors such as: the timing of choices. how different options are described. the default option.

A)II only
B)II and III only
C)I and III only
D)I, II, and III

Question 11

When considering choice architecture, a nudge:

A)is a gentle push in a particular direction.
B)does not take away any options.
C)allows anyone who wants to go in a different direction to do so.
D)All of these are true.

Question 12

Suppose Maya announces that she would like to make healthier choices, but she does not follow through on actually making these choices. Traditional economic theory would conclude that: Maya's revealed behavior shows that the benefits of altered behavior must not outweigh the costs. Maya made a bad choice. Maya has incorrect preferences.

A)I only
B)II and III only
C)II only
D)I, II, and III

Question 13

In choice architecture, a "bad choice" is one that:

A)policymakers want to nudge participants away from.
B)the chooser will regret later.
C)is considered not optimal by the choice architect.
D)policymakers consider not optimal for society, despite benefitting the individual chooser.

Question 14

The implementation of choice architecture that alters people's behavior in a deliberate and predictable way without greatly changing economic incentives is called:

A)influencing through choice.
B)nudging.
C)shifting.
D)baiting.

Question 15

Behavioral economists accept that: people try to maximize their well-being but sometimes make mistakes. most mistakes in behavior are unpredictable. they must remain neutral when designing choice architecture.

A)I only
B)II and III only
C)I and III only
D)I, II, and III

Question 16

The organization of the context and process in which people make decisions is called:

A)political structure.
B)choice architecture.
C)ways and means theory.
D)heuristics.

Question 17

The success of the SMarT program, which offers employees the option to commit a fraction of future pay raises to a tax-free retirement savings account, has proven that changing the way options are presented can:

A)affect people's behavior.
B)help people overcome mental biases.
C)allow people to avoid regret.
D)All of these statements are true.

Question 18

Choice architecture is the:

A)organization of the context and process in which people make decisions.
B)structure that forces utility-maximizing decisions for individuals.
C)political framework under which policy is made.
D)the mental framework people use to make all of their decisions.

Question 19

Choice architecture can:

A)alter actual decisions and thus the ultimate outcomes.
B)make it easier for people to make choices that will make them happier in the long run.
C)help people make better choices without eliminating free choice.
D)All of these statements are true.

Question 20

A mistake is a choice that:

A)the chooser later regrets.
B)is created by a choice architect but has unintended consequences.
C)leaves society as a whole worse off, but may still benefit the chooser.
D)policymakers think choosers should not make.

Question 21

The average person is more likely to make a mistake choosing _______ than what to have for dinner, due to the complex nature of the topic.

A)how to save for retirement
B)which college to attend
C)which type of health plan to choose
D)All of these are true.

Question 22

Your roommate tells you she's going to join the gym next week. A week and a half goes by and you ask her how the gym is going, and she tells you she's going to wait until the following week. Your roommate's preferences are:

A)better today than tomorrow.
B)time inconsistent.
C)mistakes.
D)considered bad choices.

Question 23

The endowment effect is the tendency to:

A)place a higher value on something a person already owns simply because they own it.
B)have a harder time parting with wealth the longer that wealth has been held.
C)believe one holds a particular skill because someone told them they do.
D)want to bestow one's own beliefs on others when making decisions.

Question 24

Time inconsistency describes:

A)a situation in which we regret choices we make simply because of when we made the choice.
B)a situation in which we change our minds about what we want simply because of the timing of the decision.
C)our inability to correctly predict how current choices will affect us in the future.
D)our inability to make choices today that determine our actions in the future.

Question 25

Loss aversion is:

A)a general tendency to prefer certain outcomes over uncertain ones.
B)a general tendency to put more effort into achieving gains than avoiding losses.
C)a general tendency to put more effort into avoiding losses than achieving gains.
D)a spectrum of tolerance for risky situations.

Question 26

Jim, an avid biker, breaks his leg and will never be able to bike again. An acquaintance offers to buy the bike for $100, but Jim refuses to sell it, insisting it is worth more. A year later, someone offers to buy the bike for $75, but Jim still refuses to sell it. Jim's behavior could be explained by:

A)limited processing power.
B)the endowment effect.
C)status quo bias.
D)substitution effect.

Question 27

A store must choose whether to advertise that customers who pay by credit card will be charged a fee or that customers who pay in cash will receive a discount. The store can expect more people to switch to paying with cash if they advertise:

A)the cash discount.
B)the credit card fee.
C)either; since it's the same outcome, people won't care one way or another.
D)This cannot be answered without more information.

Question 28

Psychological research shows that choices that involve _______ are likely to turn out worse than those involving _______.

A)complicated information; simple information
B)simple information; complicated information
C)low payoffs; high payoffs
D)high payoffs; low payoffs

Question 29

Jessica's workplace is collecting money for a lottery pool. Each employee can choose to contribute $50, with a 1 in 600,000 chance of winning $1 million. If Jessica chooses not to contribute to the lottery pool, she is probably experiencing:

A)positive framing.
B)the endowment effect.
C)loss aversion.
D)status quo bias.

Question 30

If you intend to begin jogging one week from today, and next week you tell yourself you'll begin in another week, your preferences are:

A)revealed from your actions.
B)more accurate in the future.
C)irrational.
D)time inconsistent.

Question 31

In the arena of decision-making, status quo bias means that the 'default' option:

A)has a lot of power.
B)is most likely to be chosen.
C)will automatically take place if the chooser fails to make an active decision.
D)All of these are true.

Question 32

Joanna is shopping online at one of her favorite retailers and starts the checkout process. The next page contains a pre-checked box that indicates Joanna will receive promotional e-mails from the company she's buying from, and the directions instruct her to uncheck the box if she does not wish to receive these e-mails. This practice is an example of:

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

Question 33

Choice architects know that whether something feels like a loss or gain often depends on how:

A)it is framed.
B)often the decision is made.
C)much time you have to make the decision.
D)large the outcome is.

Question 34

In the arena of decision-making, the choice that will automatically take place if the chooser fails to make an active decision is called the:

A)processing option.
B)default option.
C)choice option.
D)auto option.

Question 35

When it's not clear how to translate available information into something personally meaningful, you are:

A)more likely to make a mistake in your choice.
B)less likely to make a mistake, given the amount of information.
C)likely to invest more time in making your choice.
D)less likely to be largely impacted by the choice.

Question 36

Deondre would like to buy a particular T-shirt from his university bookstore. However, he is only willing to pay $15 for the shirt and it is selling for $30. One day Deondre's family comes to visit, and they gift him the T-shirt. A friend later offers to buy the shirt from Deondre for $20, but he declines, saying that it's worth more. This is an example of:

A)the endowment effect.
B)status quo bias.
C)commitment bias.
D)anchoring.

Question 37

An important category of bias in human decision-making is:

A)temptation.
B)revealed preference.
C)ease of the decision-making process.
D)All of these are important sources of bias in decision-making.

Question 38

People's preferences about the present are _______ with their preferences about the future, simply because future choices are _______.

A)inconsistent; more distant
B)consistent; more distant
C)inconsistent; harder to predict
D)consistent; easier to predict

Question 39

When we study choice architecture, we recognize that people make:

A)choices that rarely maximize their well-being.
B)mistakes in seemingly random ways.
C)mistakes in common and predictable ways.
D)choices that always maximize their well-being.

Question 40

Which ofthe following is not an important category of bias in human decision-making?

A)Temptation
B)Limited processing power
C)Reluctance to change
D)Single-mindedness

Question 41

Amanda, who lives in Vermont, is visiting California for the first time. At home, Amanda always goes jogging early in the morning because it's hottest in the early afternoon. Not knowing what to expect of the weather in California, she decides to go jogging in the early morning during her visit. This decision is an example of:

A)loss aversion.
B)status quo bias.
C)a heuristic.
D)positive framing.

Question 42

People respond better to _______ framing.

A)negative
B)any type of
C)consistent
D)positive

Question 43

Commitment devices are:

A)methods to increase the price of your vices.
B)methods to lower the price of your virtues.
C)successful whether weak or strong, depending on the situation.
D)All of these are true.

Question 44

Commitment devices are:

A)mechanisms that allow people to voluntarily restrict their choices in order to make it easier to stick to plans.
B)socially institutionalized practices that signal an individual has made a particular commitment.
C)policies that force participants to choose their future commitments.
D)None of these are true.

Question 45

A heuristic is a:

A)positive-framing method.
B)mental shortcut that helps us make decisions.
C)method to increase the price of your vices.
D)formal policy used by firms to drive employee behavior.

Question 46

The Save More Tomorrow (SMarT)program, which offers employees the option to commit a fraction of future pay raises to a tax-free retirement savings account, is an example of a _______ commitment device that was _______.

A)weak; successful
B)strong; successful
C)weak; unsuccessful
D)strong; unsuccessful

Question 47

Agreeing to accompany a friend to the gym for daily workouts is an example of:

A)status quo bias.
B)the endowment effect.
C)a commitment device.
D)positive framing.

Question 48

John wants to buy a scented candle for his girlfriend. He recalls that her perfume, shampoo, and body lotion all smell like flowers, so he decides to buy her a flower-scented candle. His behavior is driven by:

A)a heuristic, because he is using a rule of thumb to make his decision.
B)the endowment effect, because his girlfriend already owns flower-scented goods.
C)loss aversion, because he doesn't want to make the wrong choice.
D)status quo bias, because he decides not to deviate from his girlfriend's usual scent.

Question 49

Setting up automatic payroll deductions to put a portion of your pay into a "Christmas account" is an example of:

A)status quo bias.
B)the endowment effect.
C)positive framing.
D)a commitment device.

Question 50

Commitment devices can be: a way to use choice architecture to help you avoid temptation. a tool to help avoid framing bias implemented through formal policies or products.

A)I only
B)I and III only
C)II and III only
D)I, II, and III

Question 51

Deciding not to buy ice cream while grocery shopping because you intend to start a diet in a few days is an example of:

A)a commitment device.
B)status quo bias.
C)the endowment effect.
D)positive framing.

Question 52

Suppose you are purchasing a plane ticket. Airline A advertises that 9 out of 10 planes arrive on time. Airline B advertises that 1 out of 10 planes is delayed. Knowing that individuals are subject to _______, we would expect more people to purchase a plane ticket from Airline A.

A)status quo bias
B)time inconsistency
C)framing bias
D)anchoring bias

Question 53

Cutting up your credit cards in an effort to curb spending is an example of:

A)status quo bias.
B)a commitment device.
C)the endowment effect.
D)loss aversion.

Question 54

A store is deciding whether to advertise a credit card fee or a discount for customers paying with cash. Which advertisement will make customers more likely to pay with cash?

A)The credit card fee
B)The discount for paying cash
C)Either one; since it's the same outcome, customers won't care one way or another.
D)Neither one; customers are not likely to pay with cash regardless of how it's advertised.

Question 55

Suppose Yasmin buys a new house and calls the utility company to turn on the electricity. Yasmin is assigned an energy provider that produces electricity from burning coal. She is allowed to choose a different provider that uses clean energy sources at a later date. Yasmin is likely to _______ based on the influence of _______.

A)switch to a new provider; loss aversion
B)switch to a new provider; the endowment effect
C)stick with the assigned provider; the commitment effect
D)stick with the assigned provider; status quo bias

Question 56

Commitment devices can be: a tool to help people avoid temptation. an informal arrangement. designed using the endowment effect.

A)I and II only
B)II and III only
C)I only
D)I, II, and III

Question 57

Commitment devices:

A)need strong commitments that are hard to get out of in order to be successful.
B)never have strong commitments that are hard to get out of.
C)can be successful whether they have strong or weak commitments.
D)are only successful if they have weak commitments that are easy to break.

Question 58

Suppose you are in charge of marketing for a pharmaceutical company. You are trying to decide how to market the company's newest drug. You could say, "Nine out of ten users experienced elimination of all symptoms after one week." Or you could say, "Only one out of ten users was still experiencing symptoms after one week." Knowing that individuals are influenced by _______, you will likely choose the _______ option.

A)framing bias; second
B)framing bias; first
C)anchoring bias; first
D)anchoring bias; second

Question 59

Suppose a researcher is running an experiment. Each participant is given $10. Half of the participants are presented with option (1): "Would you accept a fifty-fifty chance of losing $3 or gaining $5?" The other half are presented with option (2): "Would you accept a fifty-fifty chance of gaining either $7 or $14?" Knowing that individuals are subject to _______, we would expect higher acceptance rates for participants offered with option (2).

A)framing bias
B)time inconsistency
C)status quo bias
D)anchoring bias

Question 60

A local government is considering replacing a public park with a new administrative building and decides to survey the city's residents. The citizens are asked how much they would be willing to pay in increased taxes to keep the public park and also how much they would be willing to receive in a tax refund in order to accept the destruction of the park. The citizens report that they would be willing to pay on average $25 each to keep the public park, but they would need to receive on average $50 in a tax refund to accept the destruction of the park. This illustrates:

A)negative framing.
B)the endowment effect.
C)loss aversion.
D)status quo bias.

Question 61

Participation in a program that requires active enrollment is likely to be _______ participation in a program that automatically enrolls people and requires them to opt out of participating.

A)higher than
B)lower than
C)equal to
D)zero, unlike

Question 62

Suppose studies show that only 15 percent of all teens wear their bike helmets while riding their bikes. If policymakers wish for more teens to wear their bike helmets, they should create a public service announcement that:

A)brings attention to the fact that many teens act unsafely by not wearing a helmet.
B)urges teens to wear helmets, without disclosing the fact that a majority of teens do not wear helmets.
C)informs parents that most teens do not wear bike helmets.
D)shares the statistic, although it's impossible to predict whether this will actually influence behavior.

Question 63

If choice architects frame choices in terms of social norms, people will:

A)behave with the majority.
B)be unaffected by what the majority is doing.
C)behave in the opposite way, because uniqueness is celebrated in our culture.
D)behave according to how they view that norm.

Question 64

Suppose studies show that 12 percent of all teens choose to participate in underage drinking. If policymakers wish to reduce the amount of underage drinking, they should create an advertisement that:

A)focuses on the dangers of underage drinking, without boring teens with statistics.
B)takes advantage of the status quo bias, encouraging teens to avoid drinking in order to improve their status.
C)discloses the statistic, informing teens that a majority of teens do not engage in underage drinking.
D)shares other statistics related to the unsafe practices of underage drinking and drinking while driving.

Question 65

Disclosing information in more usable ways to decision-makers:

A)can nudge people toward making better decisions.
B)effectively eliminates certain choices from a person's options.
C)will never affect a person's decision.
D)increases instances of rational ignorance.

Question 66

Informing people of social norms will likely encourage _______ people to act in the same way, which _______.

A)more; is always a good thing
B)more; can be a problem if policymakers are trying to change typical behavior
C)more; is always a bad thing
D)less; occurs because people like to be unique

Question 67

The CARD Act, which requires credit card companies to disclose how long it willtake cardholders to pay off their debt if they only make minimum payments, is an example of:

A)disclosing information in more usable ways.
B)choice architecture that nudges people toward better decisions.
C)how the presentation of information can affect people's choices.
D)All of these are true.

Question 68

Choice architects are likely to make program participation:

A)lower, even if they frame it positively.
B)the default rule if they want low enrollment.
C)the default rule if they want high enrollment.
D)the status quo in order to entice high enrollment.

Question 69

When it comes to figuring out who wants to be an organ donor, the answer depends on:

A)how you ask the question.
B)the default rule.
C)whether presumed consent exists in the organ donation program.
D)All of these are true.

Question 70

Camille and Priya are talking over coffee. Camille mentions that she is considering spending a semester studying abroad in France. Priya studied abroad for a semester in Germany two years ago, and during that time her cost of living (not counting tuition)was about $5,000. Priya tells Camille that a semester abroad in France will probably cost her around $5,000, not counting tuition. Priya's comment demonstrates:

A)biased expectations.
B)anchoring.
C)a guess with loose information.
D)All of these are true.

Question 71

Disclosing information in more usable ways to decision-makers:

A)can decrease the occurrence of rational ignorance in decision-making.
B)can nudge people toward making better decisions.
C)has been useful in achieving desired outcomes, such as convincing more people to buy gas-efficient cars.
D)All of these are true.

Question 72

A default rule:

A)is a consequence that users of commitment devices agree to if they fail to follow through with their commitment.
B)defines what will automatically occur if someone fails to make an active decision.
C)is a defined limit that identifies when someone is not making a good decision.
D)is the strength of a given commitment needed to spur the individual to follow through with it.

Question 73

A person who asks, "Can you guess the height of the tallest living man? Is it more than 8 feet?" is using:

A)anchoring.
B)rule of thumb.
C)time inconsistency.
D)positive framing.

Question 74

If someone asked you to predict the price of gas in a month, and you decided to guess by adding a few cents to the current price of gas, your answer would exhibit:

A)anchoring.
B)time inconsistency.
C)rational expectations.
D)transitivity.

Question 75

Once people hear what the majority of individuals like them are doing, they are most likely going to choose:

A)something better, because they want to be special.
B)something slightly worse, because they don't want to be taken advantage of.
C)the same, because they don't like to be outliers.
D)None of these are likely choices.

Question 76

An example of a heuristic is:

A)predatory lending.
B)a rule of thumb.
C)common sense.
D)a framing device.

Question 77

Jian receives a letter from his alma mater asking him to donate to the university. The letter lists suggested donation amounts with boxes next to each that Jian can check off to indicate how much he wants to donate. This letter is an example of:

A)loss aversion.
B)positive framing.
C)anchoring.
D)rule of thumb.

Question 78

Suppose a local government is trying to reduce rates of littering in a local park. One person suggests putting up signs saying, "90% of citizens dispose of their trash, helping to keep our park beautiful." Another person suggests putting up a different sign that says, "10% of citizen's litter, reducing the beauty of the park for others." Because individuals are influenced by _______, we would expect the _______ sign to work better at reducing littering.

A)the endowment effect; first
B)reverse psychology; second
C)social norms; first
D)anchoring; second

Question 79

Knowing that most people do not care to be outliers, one way to encourage people to behave a certain way is to:

A)tell them everyone else behaves that way.
B)let them know it is a social norm to behave that way.
C)encourage the behavior of the majority.
D)All of these are true.