Micro Chapter 8
Advertising hamburger as "80% lean" instead of "20% fat" is an example of what?
Framing effects
Which of the following examples indicate that people are interested in fairness as well as self?
Giving to charity Purchasing "fair trade" products Obeying the law
In the ultimatum game, what does the threat of rejection result in?
It aligns personal interests with the interests of others.
Why do behavioral economists find it important to concentrate on the mental process of decisions?
It allows for better predictions about behavior. It helps us guide people to make better decisions.
Which of the following provides an explanation for the endowment effect?
Loss aversion
What are heuristics?
Low-energy mental shortcuts
What may hardwired heuristics do?
Make it very difficult for people to alter detrimental behaviors
What are two of the main reasons humans have a hard time with long-term planning and decisions involving trade-offs between the present and the future?
Myopia Time inconsistency
Which of the following are simplifying assumptions of human capabilities that neoclassical economists make?
People are good planners with plenty of willpower. People are almost entirely selfish and self-interested. People have stable preferences that aren't affected by context.
What has been consistently shown by studies on fairness?
People care a great deal about fairness and not only about their own gain.
Why do we often have trouble with long-term planning?
The ancient human brain was primarily focused on immediate concerns.
If an individual has no preexisting preferences for a specific option, they are likely to choose the default option and stick with the default option. What explains this kind of behavior?
The endowment effect
Which of the following contribute to the status quo bias?
The endowment effect Loss aversion
Why do people use heuristics even though the conclusions reached with them are often wrong?
The opportunity cost of perfection is too high. Too many resources are required to be perfect. There are diminishing marginal returns for using additional brain power.
What happens when mental accounting causes people to view transactions, such as the purchase of a new television, in isolation?
The size of the potential loss is exaggerated.
Which rule assumes that people simultaneously consider all of their potential consumption options when attempting to get the most out of their total utility?
The utility-maximizing rule
Why do neoclassical economists make unrealistic assumptions about human capabilities?
They allow elegant and solvable mathematical models of human behavior with precise predictions of human behavior.
Which statement about hardwired heuristics is true?
They are impossible to avoid.
When playing games for real money how do most people respond when other players are acting selfishly?
They are uncooperative.
What causes people to overestimate the likelihood of a particular event due to similar events that are highly memorable?
availability heuristic
The theory of consumer behavior accounts for time Consider the following comment: "Want to make millions of dollars? Invent a product that saves Americans lots of time. ''This statement recognizes that
because time can be used to earn money. time can be used to earn money.
What type of economist focuses on the mental process behind behavior?
behavioral
The branch of economics that combines insights from economics, psychology, and biology is ______.
behavioral economics
What is it called when specific areas within the brain deal with specific sensations, activities, and emotions?
brain modularity
__________ bias occurs when a misrepresentation results in systematic errors. (Enter one word in the blank.)
cognitive
What is it called when misunderstandings result in systematic errors?
cognitive bias
Behavioral economics combines insights from which three of the following?
economics, psychology, and biology
The _______ effect is the tendency that people have to put a higher valuation on anything that they currently possess than on identical items that they do not own.
endowment
The utility-maximizing rule assumes that people ______.
evaluate all of their potential consumption options simultaneously in order to maximize total utility
When playing games for real money, how do most people respond?
fairly and generously
A person's opinion as to whether a price, wage, or allocation is morally or ethically acceptable is ______.
fairness
One of the greatest moral and ethical factors that influences economic decisions is ______.
fairness
Which of the following represents the most important factor that drives economic behavior?
fairness
is a person's opinion as to whether a price, wage, or allocation is considered morally or ethically acceptable.
fairness
True or false: Behavioral economics only focuses on goods that yield positive marginal utility.
false
True or false: Proposers in the ultimatum game recognized that a highly unequal split was likely to be accepted and therefore offered splits that were significantly biased.
false
Evaluating consumption options in isolation rather than simultaneously is referred to as:
mental accounting
People can easily weigh current benefits and current costs but have an extremely difficult time conceptualizing future benefits and costs. Which of the following explains this situation?
myopia
What type of economists focus almost entirely on predicting behavior?
neoclassical
In the dictator game, ______ of dictators kept all of the money and in the ultimatum game, almost ______ of the proposers kept all of the money.
one third; none
Incorrectly assuming that a large portion of your choices and opinions are correct is an example of the _______ effect.
overconfidence
According to neoclassical economics, consumers care greatly about ______.
prices
In terms of consumer choices, neoclassical economics focuses on which types of products?
products that yield positive marginal utility "good" products
__________ (one word) theory deals with how consumers plan for and deal with life's ups and downs.
prospect
Although we make a few mistakes, generally proceeding through life believing that we react sensibly and make good decisions means that we believe our decisions are
rational
When our decisions are ______, they maximize the chances that we will achieve what we want.
rational
In the ultimatum game, fear of ______ results in a higher level of cooperation and utility.
rejection
Time inconsistency is a major cause of ______.
self-control problems
According to Adam Smith, which of the following strongly contribute to people's decisions?
self-interest selflessness charity
Which system in the brain is responsible when a person experiences a "gut feeling"?
system 1
Which system in the brain is responsible when a person deliberates
system 2
Consumers pay for overpriced warranties because ______.
they incorrectly view the purchase of a good that carries a warranty in isolation
__________ inconsistency is the tendency to systematically misjudge at the present time what you will want to do at some future time.
time
When your present self does not understand what your future self will want, this is ______.
time inconsistency
Which of the following is a major cause of self-control problems?
time inconsistency
True or false: Neoclassical economics focuses on providing people with more options to improve welfare.
true
What is the framing effect?
Additional information about the same situation causes a different reaction.
Which of the following form the basis of prospect theory?
Individuals experience diminishing marginal utility for gains. Good and bad events are judged in terms relative to the status quo. Individuals are loss averse. Individuals experience diminishing marginal disutility for losses.
Which of the following are considered cognitive biases?
Planning fallacy Confirmation bias Overconfidence effect Hindsight bias Self-serving bias
What are actions that you take ahead of time to make it difficult for your future self to avoid doing what your present self wants?
Precommitments
What is the best action for fighting self-control problems?
Precommitments
________ are the key to fighting self-control problems.
Precommitments
Which of the following is an example of heuristics?
Purchasing the same brand of paper towel every time you shop for paper towels
Which cognitive bias occurs when a person assumes that anything that goes wrong was beyond the individual's control?
Self-serving bias
The outcome of the dictator game illustrates which of the following about how most people behave?
They are very concerned about being fair to others.
A restaurant offers a meal that includes a burger and a side dish. Available sides include russet potato fries, sweet potato fries, a salad, or steamed vegetables. Based on the implications of the status quo bias, when will diners be most likely to have a salad as their side dish?
When it is the default option
A credit card company that quotes a minimum payment that is typically less than what a borrower owes is making use of ______.
anchoring
The phenomenon where irrelevant information unconsciously influences people's estimates about the value of goods and services is referred to as ________
anchoring
Which of the following refers to the phenomenon where irrelevant information unconsciously influences people's feelings about the status quo?
anchoring
What cognitive bias refers to the human tendency to pay attention only to information that agrees with one's preconceptions?
confirmation bias
__________ effects are important to recognize because they can be manipulated by advertisers, lawyers and politicians in order to alter people's decisions.
framing
Changes in people's preferences that are caused by new information altering their sense of whether situations are gains or losses is referred to as ______.
framing effects
When a change in the context of information causes people to react differently to the same information or situation, it is called ______.
framing effects
Which of the following are common heuristics?
gaze, steering, recognition
Which of the following is not a cognitive bias?
hardwired heuristics
Our brains are modular because they
have specific areas that deal with specific sensations, activities, and emotions.
Behavioral economists focus on ______.
improving outcomes by improving decisions, while neoclassical economists focus on giving people more options
What is a major contribution by neoclassical economists regarding our understanding of shopping behavior?
incentives matter
The tendency that people have to favor any option that is presented to them as being the default option is the _______ _______ bias.
status quo
Brand loyalty is best explained by which of the following?
status quo bias
Talia always drinks Pepsi products. When she goes to her local market, however, they are out of Pepsi, and Talia spends several minutes deciding from her other options. What explains Talia's reluctance to purchase a different brand of soda?
status quo bias
There is a much higher participation rate in organ donation when participation in the program is the default option. What does this situation illustrate?
status quo bias
What type of errors are those that people tend to make over and over again in the same situation?
systematic errors
By anchoring the minimum payment on a credit card to a low dollar amount, the borrower is more likely to
take a longer time to pay off their debt, thereby paying more in interest.
Assuming that a person is more likely to be murdered than to die of stomach cancer is an example of the cognitive bias of
the availability heuristic.
The tendency of people to put a higher valuation on anything that they currently possess than on identical items that they do not own is called ______.
the endowment effect
Behavioral economics complements neoclassical economics by helping to explain
the fact that people will buy things on impulse.
In the ultimatum game when an unfair offer was made, responders usually responded in which way?
angrily
Framing effects impact whether consumers view a situation as a gain or loss thereby altering ______.
consumption choices
Loss aversion provides an explanation for the ______ effect.
endowment
What causes people to massively overestimate their predictive abilities?
hindsight bias
Compared to neoclassical economics, behavioral economics is better able to ______.
make predictions about behavior
Evaluating consumption options in isolation rather than simultaneously is referred to as _________ accounting.
mental
Feeling no sense of urgency to save for retirement might be considered _____.
myopia
The fact that shoppers respond strongly to price is best explained by ___________ economics while impulse buying is better explained by ________ economics.
neoclassical behavioral
System ________ (number) uses a lot of heuristics in the older parts of the brain to make quick, unconscious reactions.
one
The tendency for people to favor any option that is presented to them as the default option is called ______.
status quo bias
True or false: Systematic errors occur when people make the same decision error in similar situations.
true
System ________ (number) uses the newer parts of the brain to undertake slow, deliberate, and conscious calculations.
two
Which of the following are examples of precommitments that will help control the time-inconsistency problem?
Automatic payroll deductions for retirement savings. Putting the alarm clock across the room. Weight loss competitions
According to behavioral economists which of the following heavily influence economic transactions?
Ethical factors Moral factors
