Question 1

Behavioral economists draw on insights from ________ to explore how people behave in economic settings.
A) experimental psychology
B) experimental biology
C) evolutionary biology
D) astrology
E) theoretical physics

Accepted Answer

Experimental psychology is the study of behavior and mental processes through controlled experiments. Behavioral economists use this field to understand how individuals make decisions in economic contexts, such as choosing to save or spend money or investing in certain stocks. Additionally, behavioral economists may also draw on insights from related fields such as neuroscience, sociology, and anthropology.

Question 2

In 2011,Edward Cartwright,a behavioral economist,gave credit to the Nobel Prize-winning economist Herbert Simon for launching what Cartwright calls the "you cannot be serious attack" on the standard economic model.Cartwright cites a paper published by Simon in 1955,where the author uses the standard economic model to solve elegantly how a rational person should behave.After solving an equation for this rational person's optimal behavior,Simon states: "My first empirical proposition is that there is a complete lack of evidence that,in actual human choice situations of any complexity,these computations can be,or are in fact,performed." Source: "A Behavior Model of Rational Choice," Quarterly Journal of Economics (1955): 104.
This statement by Simon can be best described as a call to
A) governments for increased education spending so that more decision-makers can and will perform the computations that Simon is referring to.
B) citizens to do their part to reduce the complexity of all human choice situations.
C) economists to replace Homo economicus in economic thinking with something more humanlike.
D) economists to continue to use Homo economicus to guide their understanding of the complex nature of human decision-making.
E) the United States Department of Economic Rationality to impose a new bylaw prohibiting the use of the standard economic model in academic research papers.

Accepted Answer

Simon's statement is a call to replace the standard economic model, which assumes that people always behave rationally and make optimal choices, with a more realistic model that takes into account the actual limitations and complexities of human decision-making. This aligns with the idea of using a more "humanlike" model in economic thinking, as mentioned in choice C.

Question 3

In 1990,Richard Thaler,a behavioral economist,said the following with respect to the standard economic model: "The problem seems to be that while economists have gotten increasingly sophisticated and clever,consumers have remained decidedly human." Which of the following statements best describes what Thaler implies in this sentence?
A) The standard economic model should be dumbed down so that more citizens can understand it.
B) The standard economic model fails to account for the fact that human beings generally do not act like Homo economicus.
C) Economists should educate citizens to become more sophisticated and clever so that their actions better fit the standard economic model.
D) The behavioral economic model needs to be abandoned.
E) Human nature is neither clever nor sophisticated.

Accepted Answer

Thaler is suggesting that the standard economic model, which assumes that individuals always act rationally and make decisions to maximize their own self-interest (Homo economicus), does not align with the way that actual human beings behave. Thaler implies that economists need to take into account the fact that humans are not always rational and need to incorporate behavioral insights into economic models.

Question 4

Behavioral economics seeks to dethrone ________ and replace him with something "more human."
A) Homo rationalimus
B) Homo economicus
C) Homo macrus
D) Homo sapiens
E) Homo stevejobsimus

Accepted Answer

Homo economicus is the assumption that individuals are always rational and make optimal decisions based on self-interest. Behavioral economics argues that this assumption is unrealistic and that people are more complex and driven by emotions, biases, and social influences. Therefore, it seeks to replace Homo economicus with a more nuanced and realistic model of human behavior.

Question 5

A relatively new area in the field of economics called ________ economics studies people who appear to make choices that do not seem rational in an economic sense.
A) business-cycle
B) financial
C) behavioral
D) labor
E) entrepreneurial

Accepted Answer

Behavioral economics studies how individuals make choices that do not appear to be rational from an economic perspective. It explores how psychological, social, and emotional factors affect decision-making and how these factors can lead to biases and deviations from optimal economic behavior.

Question 6

________ is the field of economics that studies how experimental psychology influences the decision-making process.
A) Public finance
B) Psychology
C) Behavioral economics
D) Sociology
E) Macroeconomics

Accepted Answer

Behavioral economics is the field of economics that studies how experimental psychology influences the decision-making process. It examines how individuals make choices, especially when faced with uncertainty or incomplete information, and how these choices affect market outcomes.

Question 7

Behavioral economics studies how ________ influences the decision-making process.
A) the weather pattern
B) rational economic action
C) experimental psychology
D) the financial sector
E) macroeconomics

Accepted Answer

Behavioral economics is a field that combines economics and psychology to understand how individuals make decisions. It focuses on examining psychological biases, cognitive limitations, and social influences that affect economic decisions. Thus, it studies how psychology influences the decision-making process.

Question 8

The standard economic model assumes people can be approximated by ________,who is assumed to be fully rational,calculating,and selfish; has unlimited computational ability; and never makes systematic mistakes.
A) Homo consumus
B) Homo microcus
C) Homo demandcurvius
D) Homo economicus
E) Homo elasticious

Accepted Answer

The standard economic model is based on the assumption of Homo economicus, who is a rational individual that always makes choices that maximize their own expected utility or satisfaction. This assumption allows economists to use mathematical models to analyze and predict behavior in markets and other economic settings. While Homo economicus may not accurately reflect human behavior in all situations, it provides a useful starting point for economic analysis.

Question 9

Whenever consumers make decisions without perfect information,the decision reflects
A) perfect rationality.
B) perfect irrationality.
C) bounded rationality.
D) unbounded rationality.
E) confounded rationality.

Accepted Answer

Bounded rationality is the idea that when making decisions, individuals are limited by the information they have, the cognitive limitations of their minds, and the finite amount of time they have to make a decision. This means that decisions are not perfect or irrational, but rather reflect the best possible outcome given the available information and individual limitations.

Question 10

A consumer who adheres to bounded rationality is
A) a fully rational consumer who behaves like an all-knowing supercomputer when making cost-benefit calculations.
B) a completely irrational consumer who is unable to use logic to compare costs and benefits.
C) neither capable of performing the problem-solving that traditional economic theory assumes nor is inclined to do so.
D) rational only in situations that involve market prices.
E) never rational in situations that involve market prices.

Accepted Answer

Bounded rationality refers to the idea that individuals have limited cognitive abilities and access to information, and therefore cannot always make fully rational decisions. This does not mean they are completely irrational, but rather they may use simplified decision-making strategies or rely on heuristics to make choices. This is a departure from traditional economic theory which assumes individuals always make optimal choices based on their complete knowledge and understanding of all available options. Therefore, option C is the most accurate description of a consumer who adheres to bounded rationality.

Question 11

In 2002,Daniel Kahneman was awarded the Nobel Prize in Economics for "having integrated insights from psychological research into economic science,especially concerning human judgment and decision-making under uncertainty." Source: "The Price in Economics 2002: Press Release," Nobelprize.org,October 12,2012,www.nobelprize.org/nobel_ prizes/economics/laureates/2002/press.html.
Based on this information,which academic field would Daniel Kahneman most likely identify with?
A) economics
B) industrial-organizational sociology
C) evolutionary biology
D) English
E) behavioral economics

Accepted Answer

Kahneman was awarded the Nobel Prize in Economics for his work integrating insights from psychological research into economic science, specifically regarding human judgment and decision-making under uncertainty. This aligns with the interdisciplinary field of behavioral economics.

Question 12

Most economic theory proceeds as though economic actors are all rational,self-interested decision-makers.Economists refer to this hypothetical rational,self-interested decision maker as
A) Homo consumus.
B) Homo microcus.
C) Homo demandcurvius.
D) Homo economicus.
E) Homo elasticious.

Accepted Answer

Homo economicus is the hypothetical rational, self-interested decision maker that is commonly used in economic theory. This assumption allows economists to make predictions about how individuals and markets will behave based on their own self-interest. While this assumption is not always accurate in real-world situations, it provides a useful framework for analyzing economic behavior. None of the other answer options are commonly used terms in economic theory.

Question 13

The traditional economic model conceptualizes the economy as made up of infinitely calculating,unemotional maximizers that have been called
A) Homo consumus.
B) Homo economicus.
C) Homo microcus.
D) Homo demandcurvius.
E) Homo elasticious.

Accepted Answer

Homo economicus is the traditional economic model's concept that individuals act rationally and make decisions based on self-interest and are unemotional maximizers.

Question 14

The hypothetical species Homo economicus is acutely aware of opportunities in the environment and
A) strives to maximize the benefits received from each course of action while minimizing the costs.
B) strives to minimize the benefits received from each course of action while maximizing the costs.
C) strives to equalize the benefits received and costs incurred from each course of action.
D) takes an action only if the benefits to society of this action outweigh the costs to society of this action.
E) never takes action because of the understanding that all individual actions are to the detriment of society.

Accepted Answer

Homo economicus is often characterized as being rational and self-interested, striving to maximize their own utility or benefit while minimizing their costs. This means that they are highly aware of opportunities and seek to make the most advantageous choices possible given the information available to them. Option B would not make sense as it would be working against their own self-interest. Option C may be desirable in some situations, but it is not the defining trait of Homo economicus. Option D may be a consideration for some individuals or societies, but it is not the primary focus of Homo economicus. Option E would not make sense as it implies that Homo economicus is inherently anti-social and would not take any actions at all.

Question 15

Which of the following activities involves Mary playing a game of chance?
A) Mary works eight hours at Dairy Queen and earns a total of $60.
B) Mary spends $250 on a used video game console.
C) Mary wins a $1,000 Visa gift card in a competitive food-eating competition.
D) Mary wins a $500 prize in a business plan competition.
E) Mary deposits $5 in a slot machine and does not win anything.

Accepted Answer

Depositing money in a slot machine involves playing a game of chance as the outcome is unpredictable and based on luck. Mary may or may not win anything. The other activities mentioned involve earnings through work, competition or a prize for a specific achievement.

Question 16

When comparing the standard models in the respective fields of economics and psychology,it is clear that
A) both economists and psychologists always assume that people always behave in a fully rational way.
B) both economists and psychologists always assume that people do not act in a fully rational way.
C) neither economists nor psychologists always assume that people always behave in a fully rational way.
D) economists generally assume that people always behave in a rational way,whereas psychologists generally do not.
E) psychologists generally assume that people always behave in a rational way,whereas economists generally do not.

Accepted Answer

Economists traditionally model human behavior on the assumption of rationality, meaning individuals are presumed to make decisions that maximize their utility based on available information. In contrast, psychology, especially in areas like behavioral economics, often focuses on how real human behavior deviates from these rational models, incorporating insights into cognitive biases, emotions, and other factors that influence decision-making.

Question 17

Which of the following is an example of a game of chance?
A) Jeremiah plays basketball with his girlfriend.
B) Joan works eight hours at Taco Bell.
C) Jacqueline buys a lottery ticket.
D) John runs in a marathon.
E) Jalisha purchases salsa dancing shoes.

Accepted Answer

Buying a lottery ticket involves the element of chance as the outcome is determined by a random drawing. The other options do not involve chance but rather skill, effort or choices.

Question 18

Most state lotteries
A) have positive expected values.
B) have negative expected values.
C) have expected values equal to zero.
D) do not have expected values because state lotteries are not games of chance.
E) do not have expected values because most state lotteries are operated by government agencies.

Accepted Answer

State lotteries are designed to generate revenue for the state, so the expected value for players is negative. The odds of winning the top prize are usually very low, and the payout is less than the total amount of money collected from ticket sales.

Question 19

Behavioral economics studies
A) economy-wide phenomena such as real output,inflation,unemployment,and business cycles.
B) the decision-making processes of rational,self-interested economic actors.
C) all aspects of the markets and institutions that make up the financial system.
D) the implications of trade among individuals,firms,and countries.
E) how experimental psychology provides insight into the decision-making process.

Accepted Answer

Behavioral economics studies how experimental psychology provides insight into the decision-making process. This includes studying how individuals make economic decisions, how they are influenced by social and cognitive biases, and how they respond to incentives. It focuses on understanding how people behave in real-world economic situations, rather than assuming that they always act rationally and in their own best interests.

Question 20

For mathematical convenience,assuming that people are fully rational and self-interested
A) clearly does not mean that people really are fully rational and self-interested all the time.
B) clearly means that people really are fully rational and self-interested all the time.
C) is a practice never followed by economists,but is often followed by psychologists.
D) is a practice always followed by behavioral economists.
E) is a practice that is banned in most states by professional ethics laws.

Accepted Answer

Assuming that people are fully rational and self-interested is a methodological assumption made by economists to simplify the analysis. It does not mean that people always act fully rationally and self-interested in reality. In fact, there are many cases where humans deviate from this assumption, such as in decision-making under uncertainty or social dilemmas.

Quiz 17: Behavioral Economics and Risk Taking

Behavioral economists draw on insights from ________ to explore how people behave in economic settings.

Behavioral economics seeks to dethrone ________ and replace him with something "more human."

A relatively new area in the field of economics called ________ economics studies people who appear to make choices that do not seem rational in an economic sense.

________ is the field of economics that studies how experimental psychology influences the decision-making process.

Behavioral economics studies how ________ influences the decision-making process.

The standard economic model assumes people can be approximated by ________,who is assumed to be fully rational,calculating,and selfish; has unlimited computational ability; and never makes systematic mistakes.

Whenever consumers make decisions without perfect information,the decision reflects

A consumer who adheres to bounded rationality is

Most economic theory proceeds as though economic actors are all rational,self-interested decision-makers.Economists refer to this hypothetical rational,self-interested decision maker as

The traditional economic model conceptualizes the economy as made up of infinitely calculating,unemotional maximizers that have been called

The hypothetical species Homo economicus is acutely aware of opportunities in the environment and

Which of the following activities involves Mary playing a game of chance?

When comparing the standard models in the respective fields of economics and psychology,it is clear that

Which of the following is an example of a game of chance?

Most state lotteries

Behavioral economics studies

For mathematical convenience,assuming that people are fully rational and self-interested