Economics (McConnell), AP* Edition, 20th Edition

Chapter 8: Behavioral Economics

Quiz

1
There are two economists arguing about individual behavior. The first economist argues that individuals behave, for the most part, in a rational manner. The second economist argues that complete rationality is not consistent with the observed behavior in presence of uncertainty. The second economist is probably of the what school of thought?
A)The Marxist school of thought
B)The Neoclassical school of thought
C)The Behavioral school of thought
D)The Anarchist school of thought
2
Neoclassical economics focuses almost entirely on predicting behavior, while placing little emphasis on the mental processes underlying the decisions. Why?
A)The government provides enough information to individuals
B)Neoclassical economists assume people are completely rational
C)Neoclassical economists assume preferences do not matter
D)Neoclassical economists assume people have a difficult time solving complex problems
3
The brain has evolved many mental shortcuts, or heuristics, for the following reason:
A)The human brain is too small
B)Our ancestors needed to save energy
C)Our ancestors had too many children
D)Our ancestors didn't understand time
4
Your friend received an A on her calculus test and a C on her history test. She tells you that she works really hard on her math assignments, which is why she received an A in math, but she got a C in history because her professor doesn't like her. This type of reasoning could be the result of _____________?
A)confirmation bias
B)the overconfidence effect
C)self-serving bias
D)hindsight bias
5
You were initially happy when your employer told you that you were getting a 5% raise. You then found out that your friend, who does the same job as you, received a 10% raise from the same employer. With this new information you are upset. What might be at issue here?
A)The framing effect changed your perception of your raise
B)The availability heuristic made the new information difficult to accept
C)Hindsight bias made you wish you saw it coming
D)Self-serving bias makes you want to work harder for the next raise
6
You are at a casino and they announce your name as the winner of a $1000 lottery. When you show up to pick up your prize, the casino tells you that there was a mistake and you didn't win. You state "I wish they didn't even have this stupid lottery, I was better off before the announcement!" This is an example of ____________.
A)loss aversion
B)increasing marginal disutility
C)the anchoring effect
D)the framing effect
7
Credit card companies show very small minimum-payment amounts on borrowers' monthly credit card statements because:
A)the endowment effect will increase interest earnings for the credit card companies
B)the anchoring effect will increase interest earnings for the credit card companies
C)the availability heuristic will increase interest earnings for the credit card companies
D)the low-income hypothesis will increase interest earnings for the credit card companies
8
I am asking $100 for my watch. You tell me it is only worth $50. Why might I place a higher value on my watch than you do (even if it is really only worth $50)?
A)the overconfidence effect
B)confirmation bias
C)brain modularity
D)the endowment effect
9
Your job as a financial advisor is to help companies design employee retirement programs. You observe a very low participation rate for one of your companies, so you investigate. During your investigation you find out that when an employee starts working for this company the new employee needs to sign-up for the retirement program. You advise this company to change their policy so that the new employee is automatically enrolled in the program and needs to dis-enroll. What behavior are you relying on to increase the participation rate?
A)myopia
B)time inconsistency
C)status quo bias
D)confirmation bias
10
You start a new diet and give your roommate $70. Each day you stay on your diet your roommate will give you $10 back. If you cheat that day your roommate gets to keep the $10. What behavioral problem are you trying avoid?
A)confirmation bias
B)time inconsistency
C)self-interest bias
D)sentiment bias
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