Question 1

Jake brings his Xbox home over winter break and leaves it there,thinking he will study more in the spring without it around.Jake is:

Accepted Answer

Jake is trying to overcome the time-inconsistency problem where he wants to study more but may give in to the temptation of playing games instead. By removing the Xbox from his surroundings, he is making it easier for his future self to study more without giving in to the temptation of playing games.

Question 2

Rick finds a great Internet deal on an all-inclusive vacation rental in the Tropics for $1200,and immediately places a $1000 nonrefundable deposit on it.He later learns that the dates he planned to go are right in the middle of hurricane season,and it is likely to be miserable and potentially dangerous weather the entire time.Rick decides he cannot waste the $1000 and takes the trip anyway.While sitting in the rain,miserable,Rick realizes he should have been more rational and:

Accepted Answer

Rick should have ignored his sunk cost of $1000 and made a rational decision based on the current situation. The fact that he had already paid $1000 is a sunk cost and cannot be recovered. It should not be a factor in his decision-making process going forward. He should only consider the potential benefit and risks of continuing with the vacation in the current circumstances.

Question 3

Deciding not to buy any junk food at the grocery store while shopping for the week is:

Accepted Answer

Deciding not to buy junk food at the grocery store is an example of removing temptation, which aligns with present-oriented decisions more closely to future-oriented ones. It's also a way to compensate for time inconsistency and a tool that one can use to enact the actions they want to make but have a hard time making. Therefore, all the given options are true.

Question 4

Steve is finding it impossible to get over his most recent break-up and finds himself talking about her constantly.An example of a commitment device that Steve could use to get over her would be:

Accepted Answer

The answer of Steve is finding it impossible to get...

Question 5

In an effort to lose weight,Sam posts flyers all over town that offer a reward of $50 to anyone who catches him eating unhealthy food.Sam's flyers are an example of:

Accepted Answer

Sam's flyers are an example of a commitment device, which is a tactic individuals use to help them stick to their goals by adding a cost or consequence to actions that go against those goals. In this case, the $50 reward acts as a cost for Sam if he eats unhealthy food, as he would have to pay out the reward to whoever catches him. This creates an incentive for Sam to stay committed to his goal of losing weight.

Question 6

Beth really wants to get in shape,but just can't seem to ever get herself to the gym.An example of a commitment device Beth could use would be:

Accepted Answer

Option C provides a commitment device because it involves making arrangements with another person to meet at the gym each day. This creates a sense of accountability and makes it more difficult for Beth to skip the gym. Option A may be helpful in reminding Beth to go to the gym, but it doesn't necessarily create the same sense of accountability or consequences for skipping. Option B may actually work against Beth's goal of getting in shape, as it reinforces an unhealthy behavior (indulging in dessert) rather than promoting healthy habits. Option D doesn't offer any commitment device at all.

Question 7

A commitment device is:

Accepted Answer

All of these options are true definitions of a commitment device. It is an arrangement or tool used to help individuals follow through with their plans for future behavior, often used to deal with time inconsistency or to overcome vices.

Question 8

Evan knows his GPA would skyrocket if he could break his horrible habit of procrastinating.An example of a commitment device Evan could use would be:

Accepted Answer

The answer of Evan knows his GPA would skyrocket if...

Question 9

The idea of time inconsistency:

Accepted Answer

Time inconsistency refers to the phenomenon where people's preferences change over time, making it difficult for them to stick to a plan or decision that they had made earlier. In the case of eating habits, someone may set out to eat healthily but find that their desire for pizza outweighs their previous intentions. This is an example of time inconsistency.

Answer: B) 
 Another example of time inconsistency is when people choose to pay more for something on their credit card instead of paying cash, even though they know that paying with credit will ultimately mean paying more in interest fees. In this case, their desire for instant gratification (i.e. getting the item right away) overrides their previous decision to be financially responsible.

Question 10

An example of a commitment device for Jane,who says she really wants to save more would be:

Accepted Answer

A commitment device is a mechanism that helps someone stick to their goals by imposing a cost for failing to do so. In option A, Jane would face the cost of losing her purchases if she doesn't stick to her savings goal, making it a commitment device.

Question 11

The idea of time inconsistency explains procrastination through:

Accepted Answer

Time inconsistency suggests that our present-oriented self tends to prioritize immediate gratification over long-term rewards, creating a conflict with our future-oriented self. This conflict leads to procrastination as our present-oriented self seeks immediate pleasure over long-term benefits. Option B is partially correct, as having limited time can increase the likelihood of making impulsive decisions, but it does not fully explain procrastination. Option C is also partially correct, as our ability to recall long-term benefits may diminish over time, but it does not fully explain procrastination either. Option D is incorrect as it suggests we never consider long-term benefits, which is not always true.

Question 12

Brett desperately wants to quit smoking,but just can't seem to do it on his own.So,he tells his friends that he will pay them $20 each time they catch him smoking.This agreement with Brett's friends is an example of:

Accepted Answer

This agreement increases the cost of smoking (A), provides an incentive to quit (B), and acts as a commitment device (C), making all options true.

Question 13

Installing software to limit screen time,forcing you to uninstall it every time you reach the limit,is an example of:

Accepted Answer

Installing software to limit screen time increases the cost of the vice (A), aligns with the law of demand as it discourages excessive use (B), and is explained by behavioral economics as it involves self-control mechanisms (C).

Question 14

Applying the idea of time inconsistency,we can say that,in general,a person's "future-oriented self":

Accepted Answer

The idea of time inconsistency implies that people tend to prioritize immediate gratification over long-term benefits. Therefore, the present-oriented self is more likely to give in to temptation and make unhealthy choices, while the future-oriented self would ideally choose healthier decisions. Therefore, option B is the best choice. Options A and C do not necessarily follow from the concept of time inconsistency, and option D is not always true since the future-oriented self might make choices that are not necessarily healthier or more altruistic.

Question 15

Sunk costs are:

Accepted Answer

Sunk costs are the costs that have already been incurred and cannot be recovered, regardless of whether a project is continued or not. They are not relevant for decision-making because they cannot be changed or avoided, and therefore should be ignored. Options B and C are incorrect because they refer to future costs that may or may not be incurred, and are therefore not sunk costs. Option D is incorrect because the other options are all related to sunk costs.

Question 16

Behavioral economics creates economic tools and theories to explain the systematic patterns in how we behave that lead to consistently erroneous decisions.These patterns are called:

Accepted Answer

The systematic patterns in how we behave that lead to consistently erroneous decisions are called cognitive biases, which are studied in the field of psychology. Behavioral economics creates economic tools and theories to explain these biases and their impact on economic decision-making.

Question 17

An example of a sunk cost would be:

Accepted Answer

A sunk cost is a cost that has already been incurred and cannot be recovered, regardless of future decisions. All of these options fit that definition.

Question 18

An example of a sunk cost would be:

Accepted Answer

All the options represent sunk costs because they are expenses that have already been incurred and cannot be recovered.

Question 19

Not buying junk food while doing the weekly shopping and forcing an extra trip to the store to acquire it is an example of:

Accepted Answer

Not buying junk food initially increases the effort (cost) to obtain it later (A), reflects the law of demand as higher effort reduces consumption (B), and is a strategy to manage time-inconsistent preferences by making it harder to indulge impulsively (C).

Question 20

An example of a commitment device would be:

Accepted Answer

The answer of An example of a commitment device would...

Quiz 8: Behavioral Economics: A Closer Look at Decision Making

Jake brings his Xbox home over winter break and leaves it there,thinking he will study more in the spring without it around.Jake is:

Deciding not to buy any junk food at the grocery store while shopping for the week is:

Steve is finding it impossible to get over his most recent break-up and finds himself talking about her constantly.An example of a commitment device that Steve could use to get over her would be:

In an effort to lose weight,Sam posts flyers all over town that offer a reward of $50 to anyone who catches him eating unhealthy food.Sam's flyers are an example of:

Beth really wants to get in shape,but just can't seem to ever get herself to the gym.An example of a commitment device Beth could use would be:

A commitment device is:

Evan knows his GPA would skyrocket if he could break his horrible habit of procrastinating.An example of a commitment device Evan could use would be:

The idea of time inconsistency:

An example of a commitment device for Jane,who says she really wants to save more would be:

The idea of time inconsistency explains procrastination through:

Brett desperately wants to quit smoking,but just can't seem to do it on his own.So,he tells his friends that he will pay them $20 each time they catch him smoking.This agreement with Brett's friends is an example of:

Installing software to limit screen time,forcing you to uninstall it every time you reach the limit,is an example of:

Applying the idea of time inconsistency,we can say that,in general,a person's "future-oriented self":

Sunk costs are:

Behavioral economics creates economic tools and theories to explain the systematic patterns in how we behave that lead to consistently erroneous decisions.These patterns are called:

An example of a sunk cost would be:

An example of a sunk cost would be:

Not buying junk food while doing the weekly shopping and forcing an extra trip to the store to acquire it is an example of:

An example of a commitment device would be: