Question 1

Jaylin saw a dress she liked in her favorite department store a month ago. At that time, the dress was on sale for 50% off but Jaylin did not buy it then. Instead, she bought it after the sale had ended when the store had a "Buy One, Get One Free!" promotion. Jaylin's behavior can be explained by
A) altruism.
B) a framing bias.
C) overconfidence.
D) a sunk cost fallacy.

Accepted Answer

Jaylin's decision is influenced by a framing bias, where the presentation of the "Buy One, Get One Free!" deal seems more appealing than the 50% off, even though economically they might offer similar value. This bias affects decision-making by how options are framed or presented.

Question 2

Mike's wife sent him to the store to buy a can of green beans for dinner. When Mike got to the store, a sign in front of the green beans said, "Limit 10." Although Mike had planned to buy only one can of beans, the sign made him think he was getting a good deal on green beans and that his wife would want as many as he could buy. He ended up buying ten cans of green beans. Mike's behavior can be explained by
A) a framing bias.
B) altruism.
C) a sunk cost fallacy.
D) overconfidence.

Accepted Answer

Mike's decision to buy more cans of green beans than he originally intended was influenced by the way the information was presented to him (the sign indicating a limit of 10), which is an example of framing bias.

Question 3

A college professor found that students were much more likely to use proper grammar and spelling on homework assignments if he gave them "extra credit" for doing so instead of taking away points for not using proper grammar and spelling. The professor had adjusted the extra credit points to have the same effect as taking off points. The students' behavior might be explained in terms of
A) altruism.
B) a framing bias.
C) a sunk cost fallacy.
D) overconfidence.

Accepted Answer

This behavior can be explained by a framing bias, where the way information is presented (as a gain in this case, through extra credit) affects decision-making and judgment. Framing the grammar and spelling incentive as a positive reward (extra credit) rather than a penalty (taking off points) led to better outcomes, even though the net effect on grades was designed to be the same.

Question 4

In the past, Jan's Dance Studio charged a $5 late fee if monthly tuition payments were received after the due date. A behavioral economist suggested raising monthly tuition by $5 and giving a $5 discount for on-time payments. To the owner's great surprise, the number of late payments decreased dramatically after she followed this advice. What psychological factor might explain this phenomenon?
A) altruism
B) sunk cost fallacy
C) framing bias
D) overconfidence

Accepted Answer

The decrease in late payments can be attributed to framing bias, where the way information is presented (as a potential gain rather than a loss) influences decision-making. In this case, framing the timely payment as a way to receive a discount (gain) rather than avoid a late fee (loss) motivated more people to pay on time.

Question 5

Sharkey's Surfboards are all priced one cent lower than the next round dollar, for example, $89.99, $129.99, and $114.99. Sharkey believes that his customers are affected by
A) sunk costs.
B) a sunk cost fallacy.
C) a framing bias.
D) overconfidence.

Accepted Answer

Sharkey's pricing strategy leverages a framing bias, where the price is set just below a round number to make the product appear cheaper than it actually is, influencing customers' perception and decision-making.

Question 6

Jackie put a $400 deposit on a new sofa. She has since found a different sofa that she likes better, but she still plans to buy the first one so as not to lose her deposit. Jackie is subject to
A) a framing bias.
B) overvaluing the present relative to the future.
C) overconfidence.
D) a sunk cost fallacy.

Accepted Answer

Jackie is subject to a sunk cost fallacy because she is making a decision based on the amount already invested (the $400 deposit) rather than the current and future benefits and costs of the choices available to her. The money spent on the deposit cannot be recovered, so it should not influence her decision on which sofa to buy.

Question 7

Bryan is routinely late for class because he always underestimates how long it will take him to drive to class. When it comes to arriving on time for class, Bryan is subject to
A) altruism.
B) a framing bias.
C) overconfidence.
D) a sunk cost fallacy.

Accepted Answer

Bryan's routine lateness due to underestimating his drive time is an example of overconfidence, where he consistently overestimates his ability to arrive on time despite evidence to the contrary.

Question 8

The Lake Wobegon effect refers to the tendency of people to think that they are above average in some capacity relative to others. The expression comes from Garrison Keillor's assertion that all of the children in the fictional town of Lake Wobegon are above average. This type of thinking is an example of
A) a framing bias.
B) altruism.
C) a sunk cost fallacy.
D) overconfidence.

Accepted Answer

The Lake Wobegon effect is an example of overconfidence, where individuals overestimate their own abilities or qualities, especially in comparison to others. This is reflected in the belief that one is above average, similar to the fictional children of Lake Wobegon.

Question 9

Because they are so sure of their ability to pick winners, some people hang on to a stock even in the face of overwhelming evidence that its price is going to drop. These people are subject to
A) a framing bias.
B) overconfidence.
C) a sunk cost fallacy.
D) overvaluing the present relative to the future.

Accepted Answer

Holding onto a stock despite evidence suggesting its price will drop due to an inflated belief in one's ability to pick winners is a classic example of overconfidence. This bias leads individuals to overestimate their knowledge, underestimate risks, and exhibit more confidence in their judgment and predictions than is warranted by the actual situation.

Question 10

Veronica is piling up debt while she is in college so that she can have the same lifestyle as her friends. She knows that she will have to pay off her debt in the future, but she is not worried because the time of repayment is far off. Veronica's thinking is an example of
A) a framing bias.
B) overconfidence.
C) a sunk cost fallacy.
D) overvaluing the present relative to the future.

Accepted Answer

Veronica's behavior exemplifies overvaluing the present relative to the future because she prioritizes immediate gratification and lifestyle maintenance over the long-term implications of accumulating debt.

Question 11

Many workers know they should save for retirement, but they put off doing so. They reason that there is plenty of time to do so in the future when their bills are not as high as they are now. What psychological factor associated with behavioral economics explains this behavior?
A) sunk cost fallacy
B) overvaluing the present relative to the future
C) overconfidence
D) framing bias

Accepted Answer

This behavior is explained by overvaluing the present relative to the future, where individuals prioritize immediate rewards over future benefits, leading to procrastination on saving for retirement.

Question 12

Reece stayed out late last night and is very tired. He plans to skip his 8
A) a framing bias.
B) overvaluing the present relative to the future.
C) overconfidence.
D) a sunk cost bias.

Accepted Answer

Reece's decision to skip his 8 a.m. class because he is very tired from staying out late represents overvaluing the present (his current state of tiredness) relative to the future (the benefits of attending the class). This is a common cognitive bias where immediate needs or desires are prioritized over future benefits or obligations.

Question 13

An action undertaken out of goodwill or generosity is
A) altruism.
B) behavioral economics.
C) a sunk cost.
D) a framing bias.

Accepted Answer

Altruism is the principle or practice of concern for the welfare of others, often manifested through acts of kindness or generosity without expectation of reciprocation.

Question 14

People contribute to disaster relief even when they do not personally know anyone who has been affected by the disaster. What psychological factor associated with behavioral economics explains this behavior?
A) framing bias
B) altruism
C) sunk cost fallacy
D) overconfidence

Accepted Answer

Altruism explains this behavior as it involves selflessly helping others without expecting anything in return, which aligns with contributing to disaster relief for people one does not know.

Question 15

Julian's friend Miranda is an expert on estate planning. Julian asked Miranda to speak to her women's association and Miranda agreed to do so even though she will receive no payment. Miranda's behavior can be explained as
A) a framing bias.
B) a sunk cost fallacy.
C) overconfidence.
D) altruism.

Accepted Answer

Miranda's agreement to speak without payment, aiming to help or contribute to Julian's women's association, is an example of altruism, which is the selfless concern for the well-being of others.

Question 16

Enrique teaches in the math department at a local university, and he volunteers as a math tutor at the local high school. Enrique's behavior can be explained by
A) the sunk cost fallacy.
B) altruism.
C) overconfidence.
D) framing bias.

Accepted Answer

Enrique's volunteering as a math tutor at the local high school, despite already teaching in the math department at a university, is an example of altruism. Altruism refers to selflessly helping others without expecting anything in return.

Question 17

Parami volunteers at a homeless shelter. It takes a lot of her time, and thus she sometimes takes off time from her job to do the volunteer work. Parami's behavior can be explained by
A) a framing bias.
B) overvaluing the present relative to the future.
C) overconfidence.
D) altruism.

Accepted Answer

Altruism is the principle or practice of concern for the welfare of others, often at a cost to oneself. Parami's decision to volunteer at a homeless shelter, even when it requires taking time off from her job, exemplifies altruistic behavior, as she is prioritizing the well-being of others over her own immediate personal or financial interests.

Question 18

Guilia says, "I know I shouldn't eat this piece of cake, but I am going to eat it anyway." Guilia's behavior is an example of being influenced by
A) the sunk cost fallacy.
B) a framing bias.
C) overconfidence.
D) overvaluing the present relative to the future.

Accepted Answer

Guilia's decision to eat the cake despite knowing she shouldn't is an example of overvaluing the present (the immediate pleasure of eating the cake) relative to the future (potential negative consequences such as feeling guilty or unhealthy effects). This behavior does not directly relate to the sunk cost fallacy, framing bias, or overconfidence.

Question 19

Sung Do went out to eat on vacation. He ate so much that he felt ill, but he had not wanted to leave uneaten the food he had paid for. Sung Do's behavior is an example of a lack of utility maximizing behavior due to
A) altruism.
B) a framing bias.
C) overconfidence.
D) overvaluing the present relative to the future.

Accepted Answer

The answer of Sung Do went out to eat on...

Question 20

Gerhard and Marta each set a New Year's goal to lose 20% of their body weight by June. They both bought six-month memberships to a gym. Gerhard lost 25% of his body weight in the first four months, but he kept working out at the gym since he had paid for six months of membership. By June, Marta had lost only 10% of her body weight and was frustrated that she had failed to reach her goal. Marta is an example of
A) the sunk cost fallacy, since she paid for a membership but did not achieve her goal.
B) a framing bias, since the gym convinces people that they will reach a goal.
C) overconfidence because she did not realize how hard it would be to achieve a such an aggressive goal.
D) overvaluing the present relative to the future because she was not thinking of the progress she had made.

Accepted Answer

Marta's frustration and failure to reach her goal despite her initial expectation is an example of overconfidence. She underestimated the difficulty of losing 20% of her body weight, assuming it would be easier or more feasible than it turned out to be.

Quiz 6: Consumer Choice and Demand

Jaylin saw a dress she liked in her favorite department store a month ago. At that time, the dress was on sale for 50% off but Jaylin did not buy it then. Instead, she bought it after the sale had ended when the store had a "Buy One, Get One Free!" promotion. Jaylin's behavior can be explained by

Sharkey's Surfboards are all priced one cent lower than the next round dollar, for example, $89.99, $129.99, and $114.99. Sharkey believes that his customers are affected by

Jackie put a $400 deposit on a new sofa. She has since found a different sofa that she likes better, but she still plans to buy the first one so as not to lose her deposit. Jackie is subject to

Bryan is routinely late for class because he always underestimates how long it will take him to drive to class. When it comes to arriving on time for class, Bryan is subject to

Because they are so sure of their ability to pick winners, some people hang on to a stock even in the face of overwhelming evidence that its price is going to drop. These people are subject to

Veronica is piling up debt while she is in college so that she can have the same lifestyle as her friends. She knows that she will have to pay off her debt in the future, but she is not worried because the time of repayment is far off. Veronica's thinking is an example of

Many workers know they should save for retirement, but they put off doing so. They reason that there is plenty of time to do so in the future when their bills are not as high as they are now. What psychological factor associated with behavioral economics explains this behavior?

Reece stayed out late last night and is very tired. He plans to skip his 8

An action undertaken out of goodwill or generosity is

People contribute to disaster relief even when they do not personally know anyone who has been affected by the disaster. What psychological factor associated with behavioral economics explains this behavior?

Julian's friend Miranda is an expert on estate planning. Julian asked Miranda to speak to her women's association and Miranda agreed to do so even though she will receive no payment. Miranda's behavior can be explained as

Enrique teaches in the math department at a local university, and he volunteers as a math tutor at the local high school. Enrique's behavior can be explained by

Parami volunteers at a homeless shelter. It takes a lot of her time, and thus she sometimes takes off time from her job to do the volunteer work. Parami's behavior can be explained by

Guilia says, "I know I shouldn't eat this piece of cake, but I am going to eat it anyway." Guilia's behavior is an example of being influenced by

Sung Do went out to eat on vacation. He ate so much that he felt ill, but he had not wanted to leave uneaten the food he had paid for. Sung Do's behavior is an example of a lack of utility maximizing behavior due to