ECON 202 TEST BANK -ANSWERS
Test Bank: II Topic: Prospect Theory
The "anchoring" phenomenon observed by behavioral economistsrefers to the fact that people's estimates of the value of things are affectedby
A. recently considered information.
their childhood memories.
irrelevant data always.
relevant information solely.
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Blooms: Understand Difficulty:02 Medium
Learning Objective: 08-03 Relate how prospect theory helpstoexplain many consumer behaviors, including framing effects,mental accounting, anchoring, loss aversion,and the endowment effect.
Test Bank: II Topic: Prospect Theory
Credit cardcompanies put a low "minimum required payment" on people's bills in the hope that people will send in low payments,thereby allowing the cardcompanies toearnmore interest. The companies are trying to exploit the
A. framing effect.
B. anchoring effect.
confirmation bias.
endowment effect.
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Blooms: Understand Difficulty:02 Medium
Learning Objective: 08-03 Relate how prospect theory helpstoexplain many consumer behaviors, including framing effects,mental accounting, anchoring, loss aversion,and the endowment effect.
Test Bank: II Topic: Prospect Theory
Fred just purchased an expensive new refrigerator and is considering purchasing the overpriced warranty. In making his decision on the warranty, Fred ignoresbetter ways that his money could be spent, including paying off high-interest credit card debt. According to prospect theory,the process that leads Fred to ignore the debt and buy the overpriced warranty is
A. framing bias.
B. anchoring.
mental accounting.
confirmation bias.
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Blooms: Understand Difficulty:02 Medium
Learning Objective: 08-03 Relate how prospect theory helpstoexplain many consumer behaviors, including framing effects,mental accounting, anchoring, loss aversion,and the endowment effect.
Test Bank: II Topic: Prospect Theory
The tendency of people to believethat something they own is more valuable thanan identical item that they do notown is known in prospecttheory as the
A. endowment effect.
anchoring effect.
status quo bias.
confirmation bias.
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Blooms: Understand Difficulty:02 Medium
Learning Objective: 08-03 Relate how prospect theory helpstoexplain many consumer behaviors, including framing effects,mental accounting, anchoring, loss aversion,and the endowment effect.
Test Bank: II Topic: Prospect Theory
The tendency of people to overestimate the value of their possessions when,say, considering such value for insurance purposes is known in prospect theory as the
A. anchoring effect.
B. endowment effect.
status quo bias.
confirmation bias.
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Understand Difficulty:02 Medium
Learning Objective: 08-03 Relate how prospect theory helpstoexplain many consumer behaviors, including framing effects,mental accounting, anchoring, loss aversion,and the endowment effect.
Test Bank: II Topic: Prospect Theory
Economist John List has shown that the so-called endowment effect tends to be lower among people whooften
A. buy things for resale.
buy things for personal long-term use.
produce things for themselves.
value their possessions.
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Blooms: Understand Difficulty:02 Medium
Learning Objective: 08-03 Relate how prospect theory helpstoexplain many consumer behaviors, including framing effects,mental accounting, anchoring, loss aversion,and the endowment effect.
Test Bank: II Topic: Prospect Theory
That people tend tohold on to shares of stock well past the point where it makessense to sell those shares can be explained in part by the
A. anchoring effect.
B. endowment effect.
status quo bias.
confirmation bias.
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Blooms: Understand Difficulty:02 Medium
Learning Objective: 08-03 Relate how prospect theory helpstoexplain many consumer behaviors, including framing effects,mental accounting, anchoring, loss aversion,and the endowment effect.
Test Bank: II Topic: Prospect Theory
Some behavioral economists explain the so-called endowment effect to be a consequence of people'stendency to
A. feel gains more intensely than losses.
B. feel losses more intenselythan gains.
focus mentally on a recently viewednumber.
feel strongly about fairness and generosity.
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Blooms: Understand Difficulty:02 Medium
Learning Objective: 08-03 Relate how prospect theory helpstoexplain many consumer behaviors, including framing effects,mental accounting, anchoring, loss aversion,and the endowment effect.
Test Bank: II Topic: Prospect Theory
People's tendency to prefer the "default" option over other options is known in prospecttheory as
the anchoring effect.
the mental accounting effect.
C. status quo bias.
D. confirmation bias.
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Blooms: Understand Difficulty:02 Medium
Learning Objective: 08-03 Relate how prospect theory helpstoexplain many consumer behaviors, including framing effects,mental accounting, anchoring, loss aversion,and the endowment effect.
Test Bank: II Topic: Prospect Theory
Behavioral economists have found that one major explanation for the intercountry differences in participation rates in organ-donation programs is
the anchoring effect.
the mental accounting effect.
C. status quo bias.
D. confirmation bias.
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Blooms: Understand Difficulty:02 Medium
Learning Objective: 08-03 Relate how prospect theory helpstoexplain many consumer behaviors, including framing effects,mental accounting, anchoring, loss aversion,and the endowment effect.
Test Bank: II Topic: Prospect Theory
Behavioral economists suggest that brand loyalty, which can be a source of monopolypower for the producer, may be explained by consumers' tendency to havethe
anchoring effect.
mental accounting effect.
C. status quo bias.
D. confirmation bias.
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Blooms: Understand Difficulty:02 Medium
Learning Objective: 08-03 Relate how prospect theory helpstoexplain many consumer behaviors, including framing effects,mental accounting, anchoring, loss aversion,and the endowment effect.
Test Bank: II Topic: Prospect Theory
Behavioral economists suggest that the reason why many consumerstend to stick to one brand in things that they often buy, like fooditems, is people's tendencyto have the
anchoring effect.
mental accounting effect.
C. status quo bias.
D. confirmation bias.
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Blooms: Understand Difficulty:02 Medium
Learning Objective: 08-03 Relate how prospect theory helpstoexplain many consumer behaviors, including framing effects,mental accounting, anchoring, loss aversion,and the endowment effect.
Test Bank: II Topic: Prospect Theory
Prospect theory explains the status-quo bias as a combination of loss aversion and the
anchoring effect.
mental accounting effect.
C. endowment effect.
D. confirmation bias.
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Blooms: Understand Difficulty:02 Medium
Learning Objective: 08-03 Relate how prospect theory helpstoexplain many consumer behaviors, including framing effects,mental accounting, anchoring, loss aversion,and the endowment effect.
Test Bank: II Topic: Prospect Theory
Myopia and time inconsistency are major stumblingblocks that behavioral economists have found in people's abilityto make decisions that involvetrade-offs between
importing and exporting.
work and leisure.
the private sector and thegovernment.
D. the present and thefuture.
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Blooms: Understand Difficulty:02 Medium
Learning Objective:08-04 Describe how time inconsistency and myopia cause peopletomake suboptimal long-run decisions.
Test Bank: II Topic: Myopia and Time Inconsistency
Myopia means
far-sightedness.
a tendencyto focus on the future.
C. a higher concern for thepresent.
D. price sensitivity.
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Blooms: Understand Difficulty:02 Medium
Learning Objective:08-04 Describe how time inconsistency and myopia cause peopletomake suboptimal long-run decisions.
Test Bank: II Topic: Myopia and Time Inconsistency
People's tendency to prefer something that will yield immediatebenefits over somethingwhose benefits come later is called what by behavioral economists?
A. myopia
mental accounting
anchoring
framing
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Blooms: Understand Difficulty:02 Medium
Learning Objective:08-04 Describe how time inconsistency and myopia cause peopletomake suboptimal long-run decisions.
Test Bank: II Topic: Myopia and Time Inconsistency
According to behavioral economics, the difficulty among many people to sufficiently save for their retirement is partly explained by
A. myopia.
mental accounting.
anchoring.
framing.
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Blooms: Understand Difficulty:02 Medium
Learning Objective:08-04 Describe how time inconsistency and myopia cause peopletomake suboptimal long-run decisions.
Test Bank: II Topic: Myopia and Time Inconsistency
According to behavioral economics,the difficulty among many people tostick to a diet or an exercise plan is partly explained by
A. myopia.
mental accounting.
anchoring.
framing.
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Blooms: Understand Difficulty:02 Medium
Learning Objective:08-04 Describe how time inconsistency and myopia cause peopletomake suboptimal long-run decisions.
Test Bank: II Topic: Myopia and Time Inconsistency
The tendency of people to misjudge, at the present time,what they will want to do or have at some futuretime is called
A. time inconsistency.
mental accounting.
anchoring.
framing.
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Blooms: Understand Difficulty:02 Medium
Learning Objective:08-04 Describe how time inconsistency and myopia cause peopletomake suboptimal long-run decisions.
Test Bank: II Topic: Myopia and Time Inconsistency
According to behavioral economics, one major cause of self-control problems (such as strictly followingthrough on "newyear's resolutions") is
A. time inconsistency.
mental accounting.
anchoring.
framing.
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Blooms: Understand Difficulty:02 Medium
Learning Objective:08-04 Describe how time inconsistency and myopia cause peopletomake suboptimal long-run decisions.
Test Bank: II Topic: Myopia and Time Inconsistency
So-called precommitments are effective ways of fighting
framing effects.
mental accounting.
anchoring.
D. self-control problems.
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Blooms: Understand Difficulty:02 Medium
Learning Objective:08-04 Describe how time inconsistency and myopia cause peopletomake suboptimal long-run decisions.
Test Bank: II Topic: Myopia and Time Inconsistency
Examples of precommitments to deal with people'stime inconsistency problems include the following, except
A. automatic payroll deductions.
B. debit card accounts.
early withdrawal penalties.
salary smoothing.
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Blooms: Understand Difficulty:02 Medium
Learning Objective:08-04 Describe how time inconsistency and myopia cause peopletomake suboptimal long-run decisions.
Test Bank: II Topic: Myopia and Time Inconsistency
The tendency of people to discountlong-term values morethanthey do near-term values—making many people“future blind”— is known in behavioral economics as
A. myopia.
anchoring.
framing effects.
time Inconsistency.
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Blooms: Understand Difficulty:02 Medium
Learning Objective:08-04 Describe how time inconsistency and myopia cause peopletomake suboptimal long-run decisions.
Test Bank: II Topic: Myopia and Time Inconsistency
Which of the followingdo behavioral economists blameforwhy many households in sunny areas resistsolar panels because they focus on the upfront installation costs instead of the larger long-run benefits that accruefrom the solar panels?
framing effects
anchoring
C. myopia
D. time Inconsistency
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Blooms: Understand Difficulty:02 Medium
Learning Objective:08-04 Describe how time inconsistency and myopia cause peopletomake suboptimal long-run decisions.
Test Bank: II Topic: Myopia and Time Inconsistency
The neoclassical economists’ "invisible hand" of the market is driven by people's
sense of fairness.
generosity.
C. self-interest.
D. time inconsistency.
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Blooms: Remember Difficulty: 01 Easy
Learning Objective:08-05 Define fairness and give examples of how it affects behavior in the economyandin the dictator andultimatum games.
Test Bank: II Topic: Fairness and Self-Interest
Neoclassical economic analysis tends to disregard the following motivations in people's decisionsand actions, except
charity.
selflessness.
C. self-interest.
D. focus on the common good.
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Blooms: Remember Difficulty: 01 Easy
Learning Objective:08-05 Define fairness and give examples of how it affects behavior in the economyandin the dictator andultimatum games.
Test Bank: II Topic: Fairness and Self-Interest
The facts that many people give to charityand that most people obey the law regardlessof whether someone is watching or not, are field evidence for
A. the invisible hand.
B. fairness.
self-interest.
cognitive biases.
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Blooms: Remember Difficulty: 01 Easy
Learning Objective:08-05 Define fairness and give examples of how it affects behavior in the economyandin the dictator andultimatum games.
Test Bank: II Topic: Fairness and Self-Interest
Neoclassical economics assumes the followingas major motivators of decisions andactions, except
utility maximization.
loss minimization.
C. sense of fairness.
D. self-interest.
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Blooms: Remember Difficulty: 01 Easy
Learning Objective:08-05 Define fairness and give examples of how it affects behavior in the economyandin the dictator andultimatum games.
Test Bank: II Topic: Fairness and Self-Interest
The dictator game andultimatum game are experiments that have provided field evidence for
A. the invisible hand.
B. fairness.
self-interest.
cognitive biases.
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Blooms: Remember Difficulty: 01 Easy
Learning Objective:08-05 Define fairness and give examples of how it affects behavior in the economyandin the dictator andultimatum games.
Test Bank: II Topic: Fairness and Self-Interest
Some economists are suggestingthat we should use the insights of behavioral economics to
coerce people to make decisionstoward improving their happiness.
design elaborate rules to restrict individuals' chances of hurtingthemselves.
C. nudge people toward choicesthatimprove their welfare orthat of others.
D. provide huge monetaryincentives to people to move them toaction.
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Blooms: Remember Difficulty: 01 Easy
Learning Objective:08-05 Define fairness and give examples of how it affects behavior in the economyandin the dictator andultimatum games.
Test Bank: II Topic: Fairness and Self-Interest
Key features of so-called nudges include the following, except that
they are subtle.
they induce changes in behavior without bullying or coercion.
C. they involve significant monetary incentives.
D. they can be viewedby some as manipulation.
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Blooms: Remember Difficulty: 01 Easy
Learning Objective:08-05 Define fairness and give examples of how it affects behavior in the economyandin the dictator andultimatum games.
Test Bank: II Topic: Fairness and Self-Interest
"Nudging" is the term used to refer to making people make better choices for themselves,using lessons about human behavior which economists have learned from
neoclassical theory.
purely competitive markets.
marginal analysis.
D. behavioral economics.
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Blooms: Remember Difficulty: 01 Easy
Learning Objective:08-05 Define fairness and give examples of how it affects behavior in the economyandin the dictator andultimatum games.
Test Bank: II Topic: Fairness and Self-Interest
True / False Questions
Behavioral economics developedas a field of study that looks intohowpeople make rationaldecisions based on self-interest.
FA LSE
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Blooms: Remember Difficulty: 01 Easy
Learning Objective: 08-01 Define behavioraleconomics and explain how it contrasts with neoclassicaleconomics.
Test Bank: II Topic: Systematic Errors and the Origin of Behavioral Economics
One major point of disagreement between neoclassical economics and behavioral economics is theassumption of rationality.
TRUE
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Blooms: Remember Difficulty: 01 Easy
Learning Objective: 08-01 Define behavioraleconomics and explain how it contrasts with neoclassicaleconomics.
Test Bank: II Topic: Systematic Errors and the Origin of Behavioral Economics
Neoclassical economics and behavioral economics are similar in the assumption that people are capable of makingaccurate, sometimescomplex, calculations with respect totheir utility-maximizing decisions.
FA LSE
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 08-01 Define behavioraleconomics and explain how it contrasts with neoclassicaleconomics.
Test Bank: II Topic: Systematic Errors and the Origin of Behavioral Economics
Neoclassical economics focuses on predicting the behaviorof economic agents, whereasbehavioral economicsfocuses on the mental processes involvedin decision making.
TRUE
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Blooms: Remember Difficulty: 01 Easy
Learning Objective: 08-01 Define behavioraleconomics and explain how it contrasts with neoclassicaleconomics.
Test Bank: II Topic: Systematic Errors and the Origin of Behavioral Economics
Behavioral economics hopes to eventually fully replacethe neoclassical economicmodel.
FA LSE
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 08-01 Define behavioraleconomics and explain how it contrasts with neoclassicaleconomics.
Test Bank: II Topic: Systematic Errors and the Origin of Behavioral Economics
One major tenet of behavioral economics is that the human brain is prone tocommit errors in perception.
TRUE
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Blooms: Understand Difficulty:02 Medium
Learning Objective: 08-02 Discuss the evidence for the brain being modular, computationally restricted, reliant on heuristics, and pronetovarious forms of cognitive error.
Test Bank: II Topic: Our Efficient, Error-Prone Brains
The low-energy mental shortcuts, or heuristics,that the human brain commonly employs is one major reason for the systematic errors in decisionmaking that people make, which is the focus of behavioral economics.
TRUE
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Understand Difficulty:02 Medium
Learning Objective: 08-02 Discuss the evidence for the brain being modular, computationally restricted, reliant on heuristics, and pronetovarious forms of cognitive error.
Test Bank: II Topic: Our Efficient, Error-Prone Brains
One consequence of the confirmation bias is that many people believe that they could "beat the (stock)market."
FA LSE
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Understand Difficulty:02 Medium
Learning Objective: 08-02 Discuss the evidence for the brain being modular, computationally restricted, reliant on heuristics, and pronetovarious forms of cognitive error.
Test Bank: II Topic: Our Efficient, Error-Prone Brains
When people often blame an "act of nature" or their colleagues for their plans going awry,theyare illustrating the cognitive bias known as the overconfidence effect.
FA LSE
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Understand Difficulty:02 Medium
Learning Objective: 08-02 Discuss the evidence for the brain being modular, computationally restricted, reliant on heuristics, and pronetovarious forms of cognitive error.
Test Bank: II Topic: Our Efficient, Error-Prone Brains
When people change their decision just because thecontext of the given information is changed, wecall that the "framing effect."
TRUE
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Understand Difficulty:02 Medium
Learning Objective: 08-02 Discuss the evidence for the brain being modular, computationally restricted, reliant on heuristics, and pronetovarious forms of cognitive error.
Test Bank: II Topic: Our Efficient, Error-Prone Brains
The "hedonictreadmill" of prospecttheory suggests that if people's incomes rise andstay at thenewhigher level, then their feelings of satisfaction also rise and stay at the new higher level.
FA LSE
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Understand Difficulty:02 Medium
Learning Objective: 08-03 Relate how prospect theory helpstoexplain many consumer behaviors, including framing effects,mental accounting, anchoring, loss aversion,and the endowment effect.
Test Bank: II Topic: Prospect Theory
The anchoring effect suggests that when people are made to think of large abstract numbers before they goshopping, many of them will subsequently be willing to pay higher prices for stuff.
TRUE
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Blooms: Understand Difficulty:02 Medium
Learning Objective: 08-03 Relate how prospect theory helpstoexplain many consumer behaviors, including framing effects,mental accounting, anchoring, loss aversion,and the endowment effect.
Test Bank: II Topic: Prospect Theory
The endowment effect makes people value things less when they think of those things as their own as opposed to identical things that are not theirs—as in "the grass is greener on the other side."
FA LSE
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Understand Difficulty:02 Medium
Learning Objective: 08-03 Relate how prospect theory helpstoexplain many consumer behaviors, including framing effects,mental accounting, anchoring, loss aversion,and the endowment effect.
Test Bank: II Topic: Prospect Theory
"Loss aversion" helps explain why peoplebuy insurance policieswith lower deductibles even though the policiesare more expensive.
TRUE
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Blooms: Understand Difficulty:02 Medium
Learning Objective: 08-03 Relate how prospect theory helpstoexplain many consumer behaviors, including framing effects,mental accounting, anchoring, loss aversion,and the endowment effect.
Test Bank: II Topic: Prospect Theory
The status quoeffect suggests that giving peoplemore options is always good for them.
FA LSE
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Understand Difficulty:02 Medium
Learning Objective: 08-03 Relate how prospect theory helpstoexplain many consumer behaviors, including framing effects,mental accounting, anchoring, loss aversion,and the endowment effect.
Test Bank: II Topic: Prospect Theory
Automatic payroll deductions help people to fight their timeinconsistency problem with regards to saving.
TRUE
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Understand Difficulty:02 Medium
Learning Objective:08-04 Describe how time inconsistency and myopia cause peopletomake suboptimal long-run decisions.
Test Bank: II Topic: Myopia and Time Inconsistency
Self-control problems, say, among people ona diet, is caused by the cognitive bias known as time inconsistency.
TRUE
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Understand Difficulty:02 Medium
Learning Objective:08-04 Describe how time inconsistency and myopia cause peopletomake suboptimal long-run decisions.
Test Bank: II Topic: Myopia and Time Inconsistency
Sellers' sense of fairnessin pricing can sometimeslead them to pricingdecisions that do not maximize profits.
TRUE
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective:08-05 Define fairness and give examples of how it affects behavior in the economyandin the dictator andultimatum games.
Test Bank: II Topic: Fairness and Self-Interest
Sellers' sense of fairnessis always consistent with the notion of rationalself-interest of neoclassical economics.
FA LSE
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective:08-05 Define fairness and give examples of how it affects behavior in the economyandin the dictator andultimatum games.
Test Bank: II Topic: Fairness and Self-Interest
The many quirky decisionsthat people often make, which behavioral economics have found andanalyzed, are so ingrained in the human psyche that there is nothingthat policymakers can do about helpingpeople make better choices for themselves.
FA LSE
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective:08-05 Define fairness and give examples of how it affects behavior in the economyandin the dictator andultimatum games.
Test Bank: II Topic: Fairness and Self-Interest
The idea of "nudging" people into certain choices is one major contribution of behavioral economics to policy making.
TRUE
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective:08-05 Define fairness and give examples of how it affects behavior in the economyandin the dictator andultimatum games.
Test Bank: II Topic: Fairness and Self-Interest
Chapter 21 Antitrust Policy and Regulation Answer Key
Multiple Choice Questions
All of the following can file antitrustcharges under the Sherman Act except
the U.S. Justice Department.
state attorneys general.
injured private parties.
D. the Federal Energy RegulatoryCommission.
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-01 List and explain the core elements of the majorantitrust antimonopoly lawsinthe United States.
Test Bank: I Topic: The Antitrust Laws
Movie producers A, B, and C secretly meet and agree to release their summer blockbuster films in sequence, rather than at the same time. The U.S. Justice Department learns of the agreement and files an antitrustsuit. The federalgovernment would most likely file charges underthe
A. Sherman Act, Section 1.
Sherman Act, Section 2.
Clayton Act.
Federal Trade Commission Act.
AACSB: Knowledge ApplicationAccessibility: Keyboard Navigation
Blooms: Remember Difficulty:01 Easy
Learning Objective: 21-01 List and explain the core elements of the majorantitrust antimonopoly lawsinthe United States.
Test Bank: I Topic: The Antitrust Laws
Which of the following is least likely to violate the Sherman Act or the ClaytonAct?
Competitive firms A, B, and C meet and agree to charge acommon price.
Competitive firms D and E, each with 35 percentmarket shares, merge into a single firm.
C. Competitive firms F and G independently charge lower prices to frequent customers than to occasional customers.