Question 1

Experiments show that when real people play the ultimatum game, starting with $100,
A)Player A usually proposes giving Player B more than $50.
B)Player B usually accepts Player A's proposal if Player A proposes giving Player B $30 or $40.
C)players show themselves to be rational wealth-maximizers.
D)Player B will usually demand an even split.

Accepted Answer

The answer of Experiments show that when real people play...

Question 2

Bill and Bev are playing the ultimatum game, starting with $50. A coin flip results in Bev being the one to propose a division of the $50. If Bev acts as economic theory assumes, she should propose that
A)she gets $30 and Bill gets $20.
B)she gets $25 and Bill gets $25.
C)she gets $24 and Bill gets $26.
D)she gets $49 and Bill gets $1.

Accepted Answer

The answer of Bill and Bev are playing the ultimatum...

Question 3

Which of the following is not an example of a systematic mistake that people make?
A)When asked to predict how many movie stars he can list, Ed says 200 but when put to the test he can only name 130.
B)Susan watched a home improvement show in which a contractor installed a faulty deck which collapsed within 2 years of installation. She is now concerned about the safety of her own deck.
C)Kate's manager asks her to work additional hours for which she will be paid her usual hourly wage. Kate weighs the value of her leisure time against the additional wages before responding to her manager.
D)Bill has purchased Skillman tools for years and has recently noticed a decline in quality and durability of Skillman tools. Still, when he needs a new drill, he purchases a Skillman brand drill.

Accepted Answer

Option C is not an example of a systematic mistake as it involves a thoughtful decision-making process based on weighing the pros and cons of working additional hours for additional pay. Options A, B, and D are all examples of systematic mistakes as they involve cognitive biases or habits that lead to consistent errors in judgment or decision-making. Option A is an example of the overconfidence bias, option B is an example of the availability heuristic, and option D is an example of the familiarity bias.

Question 4

According to behavioral economics, participants in a half-marathon are likely to have trained
A)more than they planned and run faster than they anticipated.
B)more than they planned but run slower than they anticipated.
C)less than they planned and run slower than they anticipated.
D)less than they planned but run faster than they anticipated.

Accepted Answer

The answer of According to behavioral economics, participants in a...

Question 5

People tend to wait until deadlines get close to work on projects in part because they believe that they can complete the projects in less time than it will actually take. Which findings from behavioral economics is this observation consistent with?
A)People tend to be time inconsistent and people tend to be overconfident.
B)People tend to be time inconsistent but not that people tend to be overconfident.
C)People tend to be overconfident, but not that people tend to be time inconsistent.
D)Neither that people tend to be overconfident nor that people tend to be time inconsistent.

Accepted Answer

This observation is consistent with the behavioral economics findings that people tend to be both time inconsistent (putting off work until later) and overconfident (believing they can complete the work in less time than it will actually take).

Question 6

Suppose that an economics professor selects two students, Audrey and Michael, to participate in a classroom experiment. The professor gives Audrey twenty $1 bills. Audrey must pick an allocation of the twenty $1 bills to offer to Michael. If Michael accepts the allocation, each student keeps his or her portion of the money. If Michael rejects the allocation, the professor keeps the $20, and each student receives nothing. Audrey selects $19 for herself and $1 for Michael. Based on the studies of human decision making, which of the following statements is correct?
A)If Michael accepts the offer, he is behaving rationally.
B)If Michael rejects the offer, he may value fairness more than $1.
C)If Michael rejects the offer, Audrey made a bad choice by trying to keep $19 for herself.
D)Any of the above could be correct.

Accepted Answer

The answer of Suppose that an economics professor selects two...

Question 7

Evidence suggests that, in the real world, people appear to care about fairness
A)only when it coincides with their own self-interest.
B)only when it coincides with their determination to be consistent over time.
C)even when it does not coincide with their own self-interest.
D)not at all.

Accepted Answer

Research has shown that people often exhibit behaviors that reflect fairness and concern for others, even when it does not directly benefit them. This suggests that people care about fairness beyond their own self-interest.

Question 8

Robert and Neal are playing the ultimatum game, starting with $100. Based on the coin toss, Robert is the player to propose a division of the $100. If Robert acts as economic theory assumes and Neal acts as experimental evidence shows, Neal will
A)accept Robert's proposal of keeping $99 and offering Neal $1.
B)accept Robert's proposal of keeping $60 and offering Neal $40.
C)reject Robert's proposal of keeping $99 and offering Neal $1.
D)reject Robert's proposal of keeping $60 and offering Neal $40.

Accepted Answer

Neal is likely to reject Robert's proposal if it does not offer a fair division. Research has shown that people tend to reject unfair offers, even if it means getting nothing. In this case, a proposal of Robert keeping $99 and offering Neal only $1 is highly unfair, and Neal is likely to reject it. On the other hand, a proposal of Robert keeping $60 and offering Neal $40 may be seen as more fair and thus Neal may accept it. However, this is not a guaranteed outcome, as Neal may still reject the offer if they perceive it as unfair.

Question 9

The results of the ultimatum game illustrate that
A)people's behavior is often driven by an innate sense of fairness.
B)homo economicus is a good description of people's behavior.
C)self-interest brings out the most efficient economic outcome.
D)people will always prefer a small gain to no gain.

Accepted Answer

The ultimatum game shows that people's behavior is often driven by an innate sense of fairness, as participants are willing to reject unfair offers even when it means receiving no gain at all. This contradicts the assumption of homo economicus, who is supposed to always act in their self-interest and maximize their own utility. The game also demonstrates that self-interest does not always bring about the most efficient economic outcome, as seen in cases where the proposer offers an unfair split and the responder rejects the offer, resulting in a suboptimal outcome for both parties. Lastly, the game does not indicate that people will always prefer a small gain to no gain - some participants are willing to forego a small gain in order to punish an unfair proposer.

Question 10

Conventional economic theory suggests that in the ultimatum game, the player proposing a split of $50 will propose that she get $49 and that the other player get $1. By the same reasoning, if the amount to be split is $1000, the player proposing the split will propose that she gets
A)$500 and that the other player gets $500.
B)$998 and that the other player gets $2.
C)$999 and that the other player gets $1.
D)$1000 and that the other player gets nothing.

Accepted Answer

In the ultimatum game, the player proposing the split wants to maximize the amount of money they receive while still offering the other player a large enough portion to accept the offer. The conventional theory suggests that offering the minimum acceptable offer to the other player ($1) will increase the likelihood of them accepting the offer.

Therefore, in a $1000 ultimatum game, the player proposing the split would offer $999 to themselves and $1 to the other player. This ensures the proposer gets as much as they can while still offering the minimum acceptable amount to the responder.

Question 11

According to behavioral economics, an employee will likely
A)work harder if she is a satisficer and if she believes a coworker is overpaid.
B)work harder if she is a satisficer, but work less hard if she believes a coworker is overpaid.
C)work harder if she believes a coworker is overpaid, but work less hard if she is a satisficer.
D)work less hard if she is a satisficer and if she believes a coworker is overpaid.

Accepted Answer

The answer of According to behavioral economics, an employee will...

Question 12

Anthony and Addie are playing the ultimatum game, starting with $100. The coin flip results in Anthony being the one to propose a division of the $100. Anthony proposes that he gets $99 and Addie gets $1. Which of the following statements is correct?
A)Because the 99-1 split isn't fair, Anthony should not make this offer.
B)Conventional economic theory predicts that Anthony will propose a 99-1 split, just as he did.
C)Experimental evidence suggests that Addie will accept the 99-1 split because, even though it isn't fair, it's better than nothing.
D)Economic theory predicts that Anthony should choose a 60-40 split to maximize his payoff.

Accepted Answer

According to conventional economic theory, Anthony should propose a 99-1 split because it is the most advantageous offer for him. Since Addie has no power to counter-offer, she will either accept or reject the offer. If she rejects it, both players get nothing, so Anthony proposes a split that he believes Addie will accept. However, experimental evidence suggests that people often reject offers that are perceived as unfair, so it is not guaranteed that Addie will accept the 99-1 split. Option A is incorrect because economic theory does not consider fairness as a factor in decision-making. Option C is partially correct, but it does not account for the possibility that Addie may reject the unfair offer. Option D is incorrect because economic theory predicts that Anthony will choose the most advantageous split for himself, not necessarily a 60-40 split.

Question 13

According to one survey 76 percent of Americans said they were not saving enough for retirement. This example of inconsistency over time
A)is rational behavior.
B)likely occurs because saving requires a sacrifice in the present for a reward in the distant future.
C)likely occurs because Americans don't care about retirement.
D)definitely would not happen if Americans earned a greater return on their investments.

Accepted Answer

The inconsistency over time likely occurs because saving for retirement requires a sacrifice in the present for a reward in the distant future. It is rational behavior to prioritize immediate needs over long-term planning, but it can lead to inconsistent saving habits. The statement does not suggest that Americans do not care about retirement, nor does it address the impact of investment returns.

Question 14

Evidence from experiments in which real people play the ultimatum game supports the idea that people
A)are rational wealth-maximizers.
B)tend to be driven by fairness, without regard for their own self-interest.
C)are driven by both fairness and self-interest.
D)have trouble calculating their own levels of wealth.

Accepted Answer

Experiments in the ultimatum game have shown that while people do want to maximize their own wealth, they also place a high value on fairness and will reject offers that they deem to be unfair, even if it means receiving nothing. This suggests that people are driven by both fairness and self-interest.

Question 15

Ihaveathousandfriends Social Networking firm had a remarkably profitable year. As a result, its employees expect to receive bonus checks. Which of the following insights into human behavior do the employees exhibit?
A)People are overconfident.
B)People care about fairness.
C)People are reluctant to change their minds.
D)People are inconsistent over time.

Accepted Answer

The employees' expectation of bonus checks suggests that they care about fairness, as they likely feel that they deserve to be rewarded for their hard work and contributions to the company's profitability.

Question 16

A mother gives her teenage daughter two choices: spend 20 minutes cleaning her room today or spend 25 minutes cleaning her room tomorrow. The same mother gives her same daughter two additional choices: clean out the garage for 20 minutes next Tuesday or 25 minutes next Wednesday. According to economic theory,
A)if the daughter chooses to procrastinate, she is behaving irrationally.
B)the daughter will likely choose to clean out her room tomorrow but clean out the garage next Tuesday.
C)the daughter will likely choose to clean out her room tomorrow and clean out the garage next Wednesday.
D)if the daughter chooses to procrastinate, she is exhibiting satisficing behavior.

Accepted Answer

The answer of A mother gives her teenage daughter two...

Question 17

Jane spends 85% of her income each year, even though she knows she should be saving 20% for retirement. Jane's behavior indicates that her behavior tends to be
A)irrational.
B)inconsistent over time.
C)satisficing rather than maximizing.
D)undefined.

Accepted Answer

The answer of Jane spends 85% of her income each...

Question 18

The ultimatum game reveals that
A)it does not make sense to try to maximize profits.
B)people may have an innate sense of fairness that economic theory does not capture.
C)offering someone a wildly unfair outcome is usually ok since people tend to make decisions using a "something is better than nothing" philosophy.
D) Both a and b.

Accepted Answer

The answer of The ultimatum game reveals that
A)it does not...

Question 19

According to behavioral economics, if people taking an exam were asked to guess the score they would receive, it would be most likely that
A)significantly more people would score below what they guessed than above what they guessed.
B)significantly more people would score above what they guessed than below what they guessed.
C)about the same number of people would score more than they guessed as scored less than they guessed.
D)people's scores would be pretty close to what they guessed.

Accepted Answer

The answer of According to behavioral economics, if people taking...

Question 20

If you are assigned the role of Player A in the Ultimatum game and you propose that player B gets $1 and you get $99
A)you are behaving as a rational wealth-maximizer and player B is likely to accept your offer.
B)you are behaving as a rational wealth-maximizer and player B is likely to reject your offer.
C)you are not behaving as a rational wealth-maximizer and player B is likely to accept your offer.
D)you are not behaving as a rational wealth-maximizer and player B is likely to reject your offer.

Accepted Answer

In the Ultimatum game, Player A proposes a distribution of money between themselves and Player B. Player B then decides whether to accept or reject the offer. If they accept, the money is split as proposed. If they reject, neither player gets any money.

Proposing that Player B gets only $1 and Player A gets $99 is not a fair distribution and Player B is unlikely to accept it. It is rational for Player A to try to maximize their own wealth, but proposing an unfair split could lead to rejection and zero payoff for both players. Therefore, the best choice is to propose a distribution that is at least somewhat fair and likely to be accepted by Player B.

Quiz 22: Frontiers in Microeconomics

Experiments show that when real people play the ultimatum game, starting with $100,

Bill and Bev are playing the ultimatum game, starting with $50. A coin flip results in Bev being the one to propose a division of the $50. If Bev acts as economic theory assumes, she should propose that

Which of the following is not an example of a systematic mistake that people make?

According to behavioral economics, participants in a half-marathon are likely to have trained

People tend to wait until deadlines get close to work on projects in part because they believe that they can complete the projects in less time than it will actually take. Which findings from behavioral economics is this observation consistent with?

Evidence suggests that, in the real world, people appear to care about fairness

Robert and Neal are playing the ultimatum game, starting with $100. Based on the coin toss, Robert is the player to propose a division of the $100. If Robert acts as economic theory assumes and Neal acts as experimental evidence shows, Neal will

The results of the ultimatum game illustrate that

Conventional economic theory suggests that in the ultimatum game, the player proposing a split of $50 will propose that she get $49 and that the other player get $1. By the same reasoning, if the amount to be split is $1000, the player proposing the split will propose that she gets

According to behavioral economics, an employee will likely

Anthony and Addie are playing the ultimatum game, starting with $100. The coin flip results in Anthony being the one to propose a division of the $100. Anthony proposes that he gets $99 and Addie gets $1. Which of the following statements is correct?

According to one survey 76 percent of Americans said they were not saving enough for retirement. This example of inconsistency over time

Evidence from experiments in which real people play the ultimatum game supports the idea that people

Ihaveathousandfriends Social Networking firm had a remarkably profitable year. As a result, its employees expect to receive bonus checks. Which of the following insights into human behavior do the employees exhibit?

Jane spends 85% of her income each year, even though she knows she should be saving 20% for retirement. Jane's behavior indicates that her behavior tends to be

The ultimatum game reveals that

According to behavioral economics, if people taking an exam were asked to guess the score they would receive, it would be most likely that

If you are assigned the role of Player A in the Ultimatum game and you propose that player B gets $1 and you get $99