Question 1

Money is:

Accepted Answer

A)  fungible, meaning it is easily exchangeable or substitutable.
B)  not fungible, meaning it cannot be easily substituted.
C)  an alternative to implicit costs.
D)  a proven cognitive bias.E) A) and B)
F) A) and C)

Question 2

Tiago has a $3,000 student loan principal with an annual interest rate of 6 percent. Tiago has just received an annual bonus from his workplace of $1,500 and is trying to decide what to do with the money. He could put the money toward paying down his student loan balance, or he could open a savings account with an annual interest rate of 2 percent. Assume that there will be no additional opportunities during the year for Tiago to put money toward his student loans or into a savings account. If he is acting rationally, what action should Tiago take?

Accepted Answer

A)  Open a savings account, because it's always wise to have money set aside for an emergency.
B)  Open a savings account, because he'll earn $30 in interest.
C)  Put the money toward his student loans, because he can't be certain whether he'll receive another bonus next year.
D)  Put the money toward his student loans, because he'll avoid owing $90 in interest.E) B) and C)
F) All of the above

Question 3

Beverly spends $100 on a teeth whitening kit. However, after just one application her gums are inflamed and her teeth feel painful when she eats hot or cold foods. When deciding whether to apply the treatment again or throw the kit away, Beverly should understand that the opportunity cost of a second application is:

Accepted Answer

A)  $100.
B)  the pain and suffering involved with the second application.
C)  $100 plus the pain and suffering involved with the second application.
D)  $100 plus the pain and suffering involved with the first and second applications.E) All of the above
F) A) and B)

Question 4

A couple watching a movie at the theater realizes halfway through that they are not enjoying the movie at all. However, they watch the entire movie because they already paid for tickets to see the movie. This is an example of:

Accepted Answer

A)  the sunk cost fallacy.
B)  making a decision at the margin.
C)  rational behavior.
D)  negative utility endorsement.E) None of the above
F) A) and B)

Question 5

Dale just won tickets to see a NASCAR race. His coworker offers to pay him $200 for the tickets, but Dale decides to use them even though he would not pay $200 for them himself. Dale's willingness to consume $200 worth of tickets that he doesn't value at $200 is attributed to:

Accepted Answer

A)  the explicit cost of ownership.
B)  the high fungibility of money.
C)  his refusal to ignore the sunk cost of the tickets.
D)  None of these are correct.E) C) and D)
F) B) and C)

Question 6

An individual who expresses a desire to lose weight but orders dessert exemplifies:

Accepted Answer

A)  rational decision making.
B)  rational behavior.
C)  irrational behavior.
D)  utility-maximizing behavior.E) B) and D)
F) A) and B)

Question 7

The implicit cost of ownership:

Accepted Answer

A)  is a cognitive bias.
B)  is an unproven concept.
C)  is a monetary opportunity cost that is often overlooked.
D)  All of these are correct.E) A) and B)
F) A) and C)

Question 8

Jasmine is trying to decide what to do with her time this summer. She could take two summer courses that will cost her $1,500 each. Alternatively, she could work as an intern, earning $5,000. What is the opportunity cost of taking summer classes?

Accepted Answer

A)  $1,500
B)  $5,000
C)  $7,500
D)  $3,500E) A) and D)
F) C) and D)

Question 9

Jane wants to save more of her money. Which of the following would be a good commitment device for Jane?

Accepted Answer

A)  An agreement that Jane give any new goods purchased to her best friend
B)  A commitment to only buy goods that are on sale
C)  A decision to cook her own food and avoid eating out unless she is very busy
D)  The purchase of a piggy bank to store all money she savesE) B) and C)
F) A) and D)

Question 10

Which of the following explains the concept of time inconsistency?

Accepted Answer

A)  People change their minds about what they want in response to gaining complete information.
B)  People change their minds about what they want simply because of the timing of the decision.
C)  People typically choose the same thing, regardless of when the decision is being made.
D)  None of these statements are true.E) A) and B)
F) None of the above

Question 11

Sadie just bought a new karaoke machine to replace her old one, which works perfectly fine and would sell on Craigslist for $50. The fact that Sadie would not pay $50 for the old karaoke machine, yet continues to let it sit in her closet unused, is explained by:

Accepted Answer

A)  the implicit cost of ownership bias.
B)  the cost of admitting she likes karaoke.
C)  ignored sunk costs.
D)  irrationally considering sunk costs.E) All of the above
F) B) and D)

Question 12

Behavioral economists believe that the less obvious a person's opportunity cost is:

Accepted Answer

A)  the harder it is to value accurately.
B)  the more it should be valued.
C)  the more it will be influenced by time inconsistency.
D)  All of these are correct.E) All of the above
F) A) and B)

Question 13

Patti sees a new type of cereal in the grocery store that sounds intriguing. Even though the new cereal is more expensive than the kind she usually buys, she decides to try it anyway. However, after eating just one bowl Patti decides she does not care for the new cereal at all. What is likely to happen next?

Accepted Answer

A)  She forces herself to finish the rest of the cereal, because she irrationally focuses on the sunk cost of purchasing it.
B)  She throws the rest of the cereal away, because she irrationally spent money on something she had no information about.
C)  She forces herself to finish the rest of the cereal, because she rationally computes the cost per bowl.
D)  None of these are likely to happen for the reason stated.E) A) and B)
F) All of the above

Question 14

Some behavioral economists recommend mechanisms that are meant to help people actually do the things they say they want to do, but often don't. Such mechanisms are often called:

Accepted Answer

A)  savings rates.
B)  charitable donations.
C)  self-control.
D)  commitment devices.E) A) and B)
F) None of the above

Question 15

Keith just got the newest iPhone for his birthday. He quickly transfers his data to the new phone and throws his older generation iPhone in a drawer. The old iPhone sits in the drawer unused, even though Keith could have sold it to a friend for $100. Economists would say this behavior is _____ and would use the concept of _____ to explain his choice.

Accepted Answer

A)  rational; the implicit cost of ownership bias
B)  irrational; the implicit cost of ownership bias
C)  irrational; ignoring sunk costs
D)  rational; considering sunk costsE) A) and D)
F) None of the above

Question 16

Neema has just spent one hour roller skating with her friends and is trying to decide whether to skate for another hour. Each hour of roller skating costs $7, plus a one-time skate rental fee of $6. Skating for another hour will make Neema one hour late for her job, where she earns $13 per hour. Which of the following statements is true?
I. The $6 skate rental fee is a sunk cost.
II. The opportunity cost of skating for one more hour is $13.
III. Neema should keep skating if the value she places on skating for one more hour is at least $20.

Accepted Answer

A)  I only
B)  II only
C)  I and III only
D)  I, II, and IIIE) None of the above
F) B) and D)

Question 17

People are especially prone to undervaluing opportunity costs when:

Accepted Answer

A)  the costs are nonmonetary, such as time.
B)  the costs are obvious, such as lost wages.
C)  the costs are monetary.
D)  the costs are explicit.E) A) and B)
F) A) and C)

Question 18

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 to:

Accepted Answer

A)  spend time doing something she really enjoys, like watching a movie, before going to the gym.
B)  allow herself to eat one dessert as a reward for each visit to the gym.
C)  make arrangements to meet with an exercise buddy every day at the gym to work out together.
D)  None of these are commitment devices Beth could use.E) B) and D)
F) A) and B)

Question 19

People consistently consider sunk costs when weighing the trade-offs involved in a decision because they:

Accepted Answer

A)  are rational.
B)  are utility maximizers.
C)  think at the margin.
D)  find it hard to accept their losses.E) B) and C)
F) B) and D)

Question 20

Kylie wins two free passes to the symphony from a raffle. She has never been to the symphony before and would probably not buy these tickets for their face value of $120. Regardless, Kylie decides to use the tickets rather than sell them at face value. This type of behavior is:

Accepted Answer

A)  irrational, because Kylie would not pay $120 for the tickets yet gives up $120 by not selling them.
B)  rational, because Kylie can experience the symphony for the first time without having to pay for it.
C)  irrational, because Kylie ignores the sunk cost of $120.
D)  rational, because Kyle does not ignore the sunk cost of $120.E) A) and D)
F) A) and C)

Exam 8: Behavioral Economics: a Closer Look at Decision Making

An individual who expresses a desire to lose weight but orders dessert exemplifies:

Correct Answer
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Correct Answer
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Correct Answer
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Sadie just bought a new karaoke machine to replace her old one, which works perfectly fine and would sell on Craigslist for $50. The fact that Sadie would not pay $50 for the old karaoke machine, yet continues to let it sit in her closet unused, is explained by:

Correct Answer
verified

Jane wants to save more of her money. Which of the following would be a good commitment device for Jane?

Correct Answer
verified

Some behavioral economists recommend mechanisms that are meant to help people actually do the things they say they want to do, but often don't. Such mechanisms are often called:

Correct Answer
verified

Correct Answer
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Correct Answer
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Money is:

Correct Answer
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The implicit cost of ownership:

Correct Answer
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Behavioral economists believe that the less obvious a person's opportunity cost is:

Correct Answer
verified

Jasmine is trying to decide what to do with her time this summer. She could take two summer courses that will cost her $1,500 each. Alternatively, she could work as an intern, earning $5,000. What is the opportunity cost of taking summer classes?

Correct Answer
verified

People are especially prone to undervaluing opportunity costs when:

Correct Answer
verified

Dale just won tickets to see a NASCAR race. His coworker offers to pay him $200 for the tickets, but Dale decides to use them even though he would not pay $200 for them himself. Dale's willingness to consume $200 worth of tickets that he doesn't value at $200 is attributed to:

Correct Answer
verified

Correct Answer
verified

People consistently consider sunk costs when weighing the trade-offs involved in a decision because they:

Correct Answer
verified

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 to:

Correct Answer
verified

Which of the following explains the concept of time inconsistency?

Correct Answer
verified

Kylie wins two free passes to the symphony from a raffle. She has never been to the symphony before and would probably not buy these tickets for their face value of $120. Regardless, Kylie decides to use the tickets rather than sell them at face value. This type of behavior is:

Correct Answer
verified

A couple watching a movie at the theater realizes halfway through that they are not enjoying the movie at all. However, they watch the entire movie because they already paid for tickets to see the movie. This is an example of:

Correct Answer
verified

Exam 8: Behavioral Economics: a Closer Look at Decision Making

An individual who expresses a desire to lose weight but orders dessert exemplifies:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Sadie just bought a new karaoke machine to replace her old one, which works perfectly fine and would sell on Craigslist for $50. The fact that Sadie would not pay $50 for the old karaoke machine, yet continues to let it sit in her closet unused, is explained by:

Correct AnswerverifiedShow Answer

Jane wants to save more of her money. Which of the following would be a good commitment device for Jane?

Correct AnswerverifiedShow Answer

Some behavioral economists recommend mechanisms that are meant to help people actually do the things they say they want to do, but often don't. Such mechanisms are often called:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Money is:

Correct AnswerverifiedShow Answer

The implicit cost of ownership:

Correct AnswerverifiedShow Answer

Behavioral economists believe that the less obvious a person's opportunity cost is:

Correct AnswerverifiedShow Answer

Jasmine is trying to decide what to do with her time this summer. She could take two summer courses that will cost her $1,500 each. Alternatively, she could work as an intern, earning $5,000. What is the opportunity cost of taking summer classes?

Correct AnswerverifiedShow Answer

People are especially prone to undervaluing opportunity costs when:

Correct AnswerverifiedShow Answer

Dale just won tickets to see a NASCAR race. His coworker offers to pay him $200 for the tickets, but Dale decides to use them even though he would not pay $200 for them himself. Dale's willingness to consume $200 worth of tickets that he doesn't value at $200 is attributed to:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

People consistently consider sunk costs when weighing the trade-offs involved in a decision because they:

Correct AnswerverifiedShow Answer

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 to:

Correct AnswerverifiedShow Answer

Which of the following explains the concept of time inconsistency?

Correct AnswerverifiedShow Answer

Kylie wins two free passes to the symphony from a raffle. She has never been to the symphony before and would probably not buy these tickets for their face value of $120. Regardless, Kylie decides to use the tickets rather than sell them at face value. This type of behavior is:

Correct AnswerverifiedShow Answer

A couple watching a movie at the theater realizes halfway through that they are not enjoying the movie at all. However, they watch the entire movie because they already paid for tickets to see the movie. This is an example of:

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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