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Exam 17: Behavioral Economics and Risk Taking

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Question 41

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For the past five years,Benjamin has been purchasing Citizens of Humanity brand jeans each time he needs a new pair of jeans,even though a different brand,such as RocaWear or Ecko,would in all likelihood bring him more utility per dollar spent.A behavioral economist would suspect Benjamin is suffering from the ________ bias.

A) egocentric
B) choice-supportive
C) time-saving
D) status quo
E) outcome

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Question 42

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A consumer who adheres to bounded rationality is

A) a fully rational consumer who behaves like an all-knowing supercomputer when making cost-benefit calculations.
B) a completely irrational consumer who is unable to use logic to compare costs and benefits.
C) neither capable of performing the problem-solving that traditional economic theory assumes nor is inclined to do so.
D) rational only in situations that involve market prices.
E) never rational in situations that involve market prices.

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Question 43

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The standard economic model assumes people can be approximated by ________,who is assumed to be fully rational,calculating,and selfish; has unlimited computational ability; and never makes systematic mistakes.

A school raffle sells 1,000 tickets at $1 each for a $350 bookstore credit.If Ramona buys one ticket,what is her net expected value for this gamble?

In 2011,Edward Cartwright,a behavioral economist,gave credit to the Nobel Prize-winning economist Herbert Simon for launching what Cartwright calls the "you cannot be serious attack" on the standard economic model.Cartwright cites a paper published by Simon in 1955,where the author uses the standard economic model to solve elegantly how a rational person should behave.After solving an equation for this rational person's optimal behavior,Simon states: "My first empirical proposition is that there is a complete lack of evidence that,in actual human choice situations of any complexity,these computations can be,or are in fact,performed." Source: "A Behavior Model of Rational Choice," Quarterly Journal of Economics (1955) : 104. This statement by Simon can be best described as a call to

Behavioral economics seeks to dethrone ________ and replace him with something "more human."

The field of economics that draws on insights from psychology to expand models of individual decision-making is ________ economics.

Consider the following scenario when answering the following questions: In 2000, researchers Brigitte Madrian and Dennis Shea analyzed the 401(k) savings behavior of employees in a large U.S. corporation before and after an interesting change in the company 401(k) plan. Before the plan change, employees were not automatically enrolled as participants in the company 401(k) plan upon being hired and were required to complete paperwork if they wanted to opt in. After the plan change, new employees were automatically enrolled in the 401(k) plan and were required to complete paperwork if they wanted to opt out. The amount of time and effort required to either opt in or opt out was approximately equal. None of the economic features of the plan changed. -The researchers found that 401(k) participation is significantly higher under automatic enrollment.One possible explanation for this finding is that

Consider the following scenario when answering the following questions: Danika and Yolanda are playing an ultimatum game where Yolanda is given an eight-slice pizza and asked to propose a way of splitting it with Danika. When Danika learns Yolanda’s proposal, Danika chooses whether to accept or reject the split. If Danika accepts the split, both players receive the slices of pizza according to Yolanda’s split proposal. If Danika rejects the split, both players receive nothing. This game will be played only once, so Yolanda does not have to worry about reciprocity when making her choice. Assume that both players enjoy pizza and each would strictly prefer to eat more pizza than less. -The fairest split proposal Yolanda can offer would be if Yolanda receives ________ slice(s) and Danika receives ________ slice(s) .

Economists who study behavior mostly conclude that people ________ well-being,but sometimes ________.

People who are risk neutral

A school raffle sells 1,000 tickets at $1 each for a $350 bookstore credit.If Ramona buys one ticket,what is her expected value of the gain for this gamble?

A choice that does not follow the assumption of rational behavior is

Consider the following scenario when answering the following questions: Ivett and Desiree are considering playing a game called Twenties versus Fifties. In this game, Ivett will place a $20 bill on the table, and Desiree will place a $50 bill on the table. Both players will then toss a fair coin. If both Ivett and Desiree toss heads or if they both toss tails, Ivett wins the $70 on the table. If one woman tosses heads and the other tosses tails, Desiree wins the $70 on the table. -Which of the following is the formula that Ivett would use to compute the expected value (EV ) of the game from her perspective?

Proponents of fairness would likely believe that

Suppose 8,000 residents at an apartment complex are separated into two groups.The first group is asked the following questions in this order: "How happy are you with your experience at the apartment complex?" followed by "How many social gatherings held at the apartment complex have you been invited to?" The second group is asked the following questions in this order: "How many social gatherings held at the apartment complex have you been invited to?" followed by "How happy are you with your experience at the apartment complex?" Further suppose that residents in the second group who reported that they had been invited to more social gatherings held at the apartment complex reported being much happier with their experience at the apartment complex than did similar residents in the first group.This is an example of ________ effects.

Consider the following scenario when answering the following questions: Suppose that, in an experimental setting, 100 students are presented with two situations involving risk and return. The students are first asked to choose between Gamble A and Gamble B, where: Gamble A: The student will receive $1 million with a 100 percent probability. Gamble B: The student will receive $1 million with an 89 percent probability, $5 million with a 10 percent probability, and $0 million (nothing) with a 1 percent probability. The students are then asked to choose between Gamble C and Gamble D, where: Gamble C: The student will receive $5 million with a 10 percent probability. Gamble D: The student will receive $1 million with an 11 percent probability. -A student who is risk neutral would choose Gamble B,which has an expected value of ________,over Gamble A,which has an expected value of ________.

Behavioral economics

Consider the following scenario when answering the following questions: Corey and Trevor are playing a coin-tossing game where each player, in turn, tosses a fair coin consecutively 10 times. The winner of the game is the player who tosses the most consecutive tails. Corey decides to go first and tosses tails five times in a row. Ricky and Julian are observing the game and have the following conversation before Corey attempts the sixth toss: Ricky: The probability of Corey tossing tails has to be greater than 75 percent because he is on a roll! Julian: No, Ricky, the probability of Corey tossing tails has to be less than 25 percent because he is due to toss heads. -Ricky's statement is an example of ________ fallacy,and Julian's statement is an example of the ________ fallacy.

Ana keeps delaying to act on her resolution to work out at the recreation center.Her preference is