Student name:__________

1) In traditional economic models, homo economicus

refers to a decision maker who

instead relies upon

A) is narrowly self-interested, well-informed, highly judgmental heuristics, or
disciplined, and cognitively capable enough to solve rules of thumb, to guide
optimization problems. decisions.
B) searches for relevant facts in a potentially D) lacks impulse
haphazard way and who quits once his or her understanding control and, as a result,
has reached a certain threshold. may experience regret.
C) makes frequent departures from rational choice and

2) In traditional economic models, the narrowly self-

interested, well-informed, highly disciplined, and cognitively
formidable decision maker is often referred to as

D) a satisficer.
A) a boundedly rational agent.
B) a behavioral economist.
C) homo economicus.

3) In traditional economic models, homo economicus is

assumed to be all of the following except

D) cognitively
A) highly disciplined. sophisticated.
B) altruistic.
C) well-informed.

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4) In traditional economic models, homo economicus is assumed to be all of the
following except
A) patriotic.
B) narrowly self-interested.
C) cognitively sophisticated.
D) highly disciplined.

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5) In traditional economic models, which of the
following does not describe homo economicus?

D) Cognitively
A) Impulsive sophisticated
B) Narrowly self-interested
C) Well-informed

6) Homo economicus is all of the following except

D) cognitively
A) highly disciplined. naive.
B) narrowly self-interested.
C) well-informed.

7) The decision-making strategy that aims for adequate

results because optimal results may necessitate excessive
expenditure of resources is known as

D) the adaptive
A) the present-aim standard of rationality. rationality standard.
B) satisficing.
C) loss aversion.

8) Satisficing is the decision-making strategy that

results may necessitate an

A) aims for adequate results when achieving optimal excessive expenditure of

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resources. consumption of others,
B) aims for optimal results in situations where the rather than on absolute
decision maker has perfect information. consumption.
C) attempts to minimize the harm from losses rather
than maximize the pleasure from gains.
D) focuses on how one's consumption compares to the

9) _______ is the property of an entity whose individual

units are interchangeable.

C) Progressivity
A) Representativeness D) Fungibility
B) Availability

10) Fungibility is the property of an entity whose

individual units

D) each serve a
A) are less valuable when used together. unique purpose.
B) are nearly impossible to identify.
C) are interchangeable.

11) If an entity is fungible, then its individual units are

D) interchangeable.
A) of value for a short period of time.
B) nearly impossible to purchase.
C) useless without the other units.

12) When Tversky and Khaneman asked one group of people to imagine that,

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having previously purchased a ticket for $10, they arrive at lost $10 group said they
the theater to discover they have lost their ticket and a second _____ still attend the
group to imagine that they arrive just before the performance performance.
to buy a ticket and find they have lost $10 from their wallets,
the majority of people in the lost ticket group said they _____
still attend the performance, and the majority of people in the

D) would not;
A) would; would not would
B) would; would
C) would not; would not

13) When researchers compare people who are asked to

imagine that, having previously purchased a ticket for $10,
they arrive at the theater to discover they have lost their ticket
to people who are asked to imagine that they arrive just before
the performance to buy a ticket and find they have lost $10
from their wallets, which group is more likely to say that they
would still attend the performance?

D) Both groups
A) The lost ticket group report that they would no
B) The lost $10 group longer go to the
C) Both groups are equally likely to say they would performance.
attend the performance.

14) Suppose one group of people is asked to imagine that,

having previously purchased a ticket for $10, they arrive at
the theater to discover they have lost their ticket, and a second
group of people is asked to imagine that they arrive just
before the performance to buy a ticket and find they have lost
$10 from their wallets. According to the rational choice
model, which group should be more likely to say they would
still attend the performance?

A) The lost ticket

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group D) Neither group
B) The lost $10 group should be interested in
C) Both groups should be equally likely to say they attending the performance.
would attend.

15) When Tversky and Khaneman asked one group of

people to imagine that, having previously purchased a ticket
for $10, they arrive at the theater to discover they have lost
their ticket and a second group to imagine that they arrive just
before the performance to buy a ticket and find they have lost
$10 from their wallets, they found that people in the lost ticket
group were more likely to say they would ______ the
performance, even though the rational choice model predicts
that people in _____.

D) no longer
A) still attend; the lost $10 group should be more attend; both groups should
likely to say they would still attend be equally likely to say
B) still attend; both groups should be equally likely to they would still attend
say they would still attend
C) no longer attend; the lost $10 group should be more
likely to say they would no longer attend

16) Rules of thumb that reduce computation costs are

known as

D) judgmental and
A) optimality constraints. decision heuristics.
B) decision trees.
C) cost-benefit calculations.

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 D) used to test the
A) a way of calculating computation costs. rational choice model
B) derived from the rational choice model but imply when computation costs
higher computation costs. are small.
C) rules of thumb that reduce computation costs.

18) The rule of thumb that estimates the frequency of an

event by the ease with which it is possible to summon
examples from memory is the

D) availability
A) adjustment heuristic. heuristic.
B) anchoring heuristic.
C) representative heuristic.

19) The _______ is a rule of thumb that estimates the

frequency of an event by the ease with which it is possible to
summon examples from memory.

D) representative
A) Weber-Fechner law heuristic
B) adaptive rationality standard
C) availability heuristic

20) According to the availability heuristic, the more easily

we can recall examples of an event

D) the less we like

A) the less likely we judge the event to be. the event.
B) the more likely we judge the event to be.
C) the more we like the event.

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21) According to the availability heuristic, we often
estimate the frequency of an event by

D) the ease with

A) using available data from either the government or which we can recall
other organizations. relevant examples.
B) how much we enjoyed the event.
C) the degree to which the event resembles
stereotypical members of a category.

22) Suppose Anna just received a parking ticket.

According to the availability heuristic, this will tend to make
Anna

D) less likely to
A) think people frequently receive parking tickets. pay future parking tickets.
B) think people should not receive parking tickets.
C) dislike parking tickets.

23) Suppose Paul just saw a car accident while driving

home from work. According to the availability heuristic, this
is likely to make Paul think that

D) car accidents are

A) people only get into car accidents if they are bad more common than they
drivers. really are.
B) he is extremely lucky.
C) car accidents are rare.

24) Suppose Christina just saw an advertisement on since James saw one.
television for an antidepressant, but it has been a long time

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According to the availability heuristic

D) Christina and
A) Christina is likely to think that depression is more James are equally likely to
common than James. think that people recover
B) James is likely to think that depression is more from depression.
common than Christina.
C) Christina and James are likely to think that
depression is equally common.

25) Suppose Bobby just watched a documentary about the

massive decline in house prices during the Great Recession.
According to the availability heuristic, this is likely to make
Bobby

D) worry that the

A) believe that he is wealthier than other people. price of his own house
B) think the movie is biased towards the status quo. might fall.
C) believe that house prices will be more stable in the
future.

26) According to the availability heuristic, which of the

following will make Anke more likely believe that she will
win a lot of money if she buys a lottery ticket?

million playing the lottery

A) Her boss hinting that she will soon receive a raise D) The fact that is
at work has been several years
B) The fact that it has been several years since she since anyone has won the
purchased a lottery ticket lottery
C) Watching a news report about someone winning $2

27) If Haru has just watched a television show in which the main character is killed

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in an airplane crash, then the availability heuristic predicts that he will

D) underestimate
A) more accurately assess the pros and cons of air the dangers of air travel.
travel.
B) never watch that television show again.
C) overestimate the dangers of air travel.

28) The rule of thumb according to which people are more

likely to assume something belongs to a given category if it
shares many characteristics with the stereotypical members of
that category is the

D) availability
A) adjustment heuristic. heuristic.
B) representative heuristic.
C) anchoring heuristic.

29) The _______ is the rule of thumb according to which

people's belief about the likelihood that something belongs to
a given category increases with the extent to which it shares
characteristics with the stereotypical members of that
category.

D) Weber-Fechner
A) representative heuristic law
B) adaptive rationality standard
C) availability heuristic

30) According to the representative heuristic, people's with the stereotypical

belief about the likelihood that something belongs to a given members of that category.
category _______ the extent to which it shares characteristics

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 C) decreases with
A) will only rarely be influenced by D) increases with
B) is unaffected by

31) According to the representative heuristic, people are

more likely to believe that something belongs to a given
category if

members of that category.

A) people believe that they themselves are members of D) it is unlike the
the category. stereotypical members of
B) people can recall other members of the category. that category.
C) it shares characteristics with the stereotypical

32) According to the _______, if Enzokuhle has many of

the characteristics of a stereotypical basketball player (for
example, she is tall), then people will be more likely to
assume she plays basketball.

D) Weber-Fechner
A) adaptive rationality standard law
B) representative heuristic
C) availability heuristic

33) According to the representative heuristic, if Kenya has

many of the characteristics of a millionaire, then people will

D) think that many

A) be less likely to think that she is a millionaire. people are millionaires.
B) be more likely to think that she is a millionaire.
C) want to have those same characteristics.

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34) According to the representative heuristic, people will
tend to think that Kayleigh is a vegetarian if

D) Kayleigh has
A) they themselves are vegetarians. many of the characteristics
B) if the fraction of vegetarians in the population is of a stereotypical
increasing. vegetarian.
C) they have just read a book about vegetarians.

35) According to the representative heuristic, people will

tend to think that Yasser is a beautician if

increasing.
A) Yasser has many of the characteristics of a D) they have just
stereotypical beautician. read a book about a
B) they regularly see a beautician. beautician.
C) if the fraction of beauticians in the population is

36) Suppose that Bishara has many of the same

characteristics as the stereotypical mathematician. According
to the representative heuristic, this will tend to make people
think that

D) many people are

A) Bishara is good at math. bad at math.
B) Bishara is bad at math.
C) many people are good at math.

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 D) Delilah has
A) they plan to apply to law school at some point in many of the characteristics
the future. of a stereotypical lawyer.
B) there are few other lawyers living in the same
geographic region.
C) Delilah vehemently denies being a lawyer.

38) According to the representative heuristic, you are

more likely to assume that someone you just met is an
architect if

earlier in the day.

A) you recently watched a television show about D) it has been a
architects. long time since you last
B) that person has many of the characteristics of an met an architect.
architect.
C) you also happened to meet two other architects

39) Suppose that 90 percent of women who are Krista's

age do not have high cholesterol and 10 percent do. If a
cholesterol test indicates that Krista has high cholesterol, but
the test is only accurate 80 percent of the time, then the
probability that Krista really does have high cholesterol is
roughly

C) 31 percent.
A) 90 percent. D) 18 percent.
B) 80 percent.

40) Suppose that 95 percent of women who are Krista's probability that Krista
age do not have high cholesterol and 5 percent do. If a really does have high
cholesterol test indicates that Krista has high cholesterol, but cholesterol is roughly
the test is only accurate 90 percent of the time, then the

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 C) 80 percent.
A) 9.5 percent. D) 32 percent.
B) 68 percent.

41) Suppose that only 2 percent of all people are geniuses.

If an IQ test indicates that Albert is a genius, but the test is
only accurate 90 percent of the time, then the probability that
Albert really is a genius is roughly

C) 10 percent.
A) 18 percent. D) 16 percent
B) 2 percent.

42) Suppose that only 4 percent of all people are geniuses.

If an IQ test indicates that Albert is a genius, but the test is
only accurate 85 percent of the time, then the probability that
Albert really is a genius is roughly

C) 18 percent.
A) 19 percent D) 80 percent.
B) 14.4 percent.

43) The phenomenon that unusual events are likely to be

followed by more nearly normal is known as

D) fungibility.
A) the adaptive rationality standard.
B) regression to the mean.
C) anchoring and adjustment.

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44) _______ is the phenomenon that unusual events are likely to be followed by
more nearly normal ones.

D) Regression to
A) The present aim standard of rationality the mean
B) Loss aversion
C) Anchoring and adjustment

45) Regression to the mean refers to the phenomenon in

which unusual events are

unusual.
A) likely to be followed by events that are more D) occurring on a
normal. regular basis.
B) unlikely to ever occur in the first place.
C) likely to be followed by events that are even more

46) Suppose Danielle receives the highest grade in the

class on the first exam in her economics course. Regression to
the mean implies that Danielle

D) is unlikely to
A) isn't likely to do as well on the second exam. forget the material she
B) is likely to do even better on the second exam. studied for the exam.
C) is likely to get an A in the class.

47) Suppose Stephen's first novel makes the New York

Times bestseller list. Regression to the mean implies that his
second novel

C) won’t be as
A) will have a similar plot to his first model.
B) will be even more popular than his first novel.

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popular as his first novel.
D) will be a complete flop.

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48) Last week, Gina's bakery sold fewer cupcakes than
ever before. Regression to the mean implies that the bakery

D) should stop
A) has probably had other bad weeks, but Gina can't selling cupcakes.
remember them.
B) will sell more cupcakes this week.
C) is likely to go out of business.

49) Eric brews beer for a hobby. He has noticed that

whenever he brews an unusually bad batch of beer, his next
batch is much better. One explanation for this is that Eric
learns from his past mistakes. Another explanation is

D) the
A) status quo bias. representative heuristic.
B) regression to the mean.
C) loss aversion.

50) An estimation technique that begins with an initial

approximation, which is then modified in accordance with
additional information, is known as

D) the
A) status quo bias. representative heuristic.
B) regression to the mean.
C) anchoring and adjustment.

51) _______ is an estimation technique that begins with an with additional

initial approximation, which is then modified in accordance

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information.

D) Anchoring and
A) The adaptive rationality standard adjustment
B) Status quo bias
C) Regression to the mean

52) When people use anchoring and adjustment to

estimate something, the adjustment they make when they
receive new information is typically

C) too large.
A) in the wrong direction. D) too small.
B) highly accurate.

53) Typically, when people use anchoring and adjustment

to estimate something, the importance of _______ in
influencing their assessment is too large.

D) neither the
A) the anchor anchor nor the adjustment
B) the adjustment
C) both the anchor and the adjustment

54) Suppose Evan and Robert are each filling out a Evan and Robert know
separate survey about parking on campus. On Evan's survey, nothing about the parking
the first question asks about whether he thinks the fine for fines on campus, but each
parking illegally on campus should be $50, and on Robert's uses anchoring and
survey the first question asks about whether he thinks the fine adjustment to form his
should be $100. For both Evan and Robert, the second assessment, then, all else
question asks how much each thinks the fine currently is. If equal, you would expect

A) Evan's estimate

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of the current fine to be higher than Robert's. D) Robert's
B) both of them to guess a number between $50 and estimate of the current fine
$100. to be higher than Evan's.
C) their estimates to be identical.

55) Suppose Chelsea reads two news articles about future

house prices. The first article predicts that house prices will
fall next month, and the second predicts that house prices will
rise next month. Valerie reads the same two articles, but she
first reads the one that predicts that house prices will rise, and
then reads the one that predicts that house prices will fall. If
Chelsea and Valerie know very little about future house
prices, and each uses anchoring and adjustment to form her
assessment, then, all else equal, which of them is more likely
to think that house prices will rise next month?

D) They will both

A) Chelsea think that house prices will
B) Valerie stay the same
C) They are both equally likely to think that house
prices will rise

56) The relationship according to which the perceived

change in any stimulus varies according to the size of the
change measured as a proportion of the original stimulus is
known as

D) regression to the
A) status quo bias. mean.
B) the representative heuristic.
C) the Weber-Fechner law.

57) _______ is the relationship according to which the perceived change in any

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stimulus varies according to the size of the change measured as a proportion of the
original stimulus.

D) Regression to
A) The adaptive rationality standard the mean
B) The Weber-Fechner law
C) The representative heuristic

58) The Weber-Fechner law is the relationship according

to which the perceived change in any stimulus

D) varies
A) depends upon an initial approximation, which is depending upon whether
then updated in accordance with additional information. the change triggers loss
B) depends upon the ease with which it is possible to aversion.
summon similar changes from memory.
C) varies according to the size of the change measured
as a proportion of the original stimulus.

59) According to the Weber-Fechner law, the perceived

change in any stimulus

the original stimulus.

A) does not depend on the size of the change in D) is zero
proportion to the original stimulus. regardless of the size of the
B) is larger when the change is large in proportion to original stimulus.
the original stimulus.
C) is larger when the change is small in proportion to

60) According to the Weber-Fechner law, when the

change in a stimulus is large in proportion to the original
stimulus, the perceived size of the change will be

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 D) impossible to
A) large. determine.
B) small.
C) zero.

61) According to the Weber-Fechner law, when the

change in a stimulus is small in proportion to the original
stimulus, the perceived size of the change will be

D) impossible to
A) large. determine.
B) small.
C) greater than one.

62) According to the Weber-Fechner law, the perceived

size of a change in a stimulus will be large when the change
in the stimulus

D) is large in
A) is a rare event. proportion to the original
B) occurs frequently. stimulus.
C) is small in proportion to the original stimulus.

63) Consider two coupons: one offers 10 percent off a pair

of jeans that costs $100, and the other offers 50 percent off a
pair of sunglasses that costs $20. Using either coupon requires
driving to the shopping mall across town. If the Weber-
Fechner law holds, which coupon will people tend to perceive
as being more valuable?

$20.
A) The coupon for the jeans since $100 is greater than B) The coupon for

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the sunglasses since 50 percent is greater than 10 percent. both require driving across
C) They will be seen as equally valuable since both town.
lead to a savings of $10.
D) Neither coupon will be of value to anyone since

64) Consider two coupons: one offers 10 percent off a pair

of jeans that costs $120, and the other offers 60 percent off a
pair of sunglasses that costs $20. Using either coupon requires
driving to the shopping mall across town. If the Weber-
Fechner law does not hold, which coupon will people tend to
perceive as being more valuable?

both require driving across

A) The coupon for the sunglasses since 60 percent is town.
greater than 10 percent. D) The coupon for
B) They will be seen as equally valuable since both the jeans since $120 is
lead to a savings of $12. greater than $20.
C) Neither coupon will be of value to anyone since

65) Consider two coupons: one offers 50 percent off a

scarf that costs $20, and the other offers 5 percent off a jacket
that costs $200. Using either coupon requires driving to the
shopping mall across town. If the Weber-Fechner law holds,
which coupon will people tend to perceive as being more
valuable?

lead to a savings of $10.

A) The coupon for the scarf since 50 percent is greater D) Neither coupon
than 5 percent. will be of value to anyone
B) The coupon for the jacket since $200 is greater than since both require driving
$20. across town.
C) They will be seen as equally valuable since both

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66) Consider two coupons: one offers $10 off a scarf that which coupon will people
costs $20, and the other offers $10 off a jacket that costs tend to perceive as being
$200. Using either coupon requires driving to the shopping more valuable?
mall across town. If the Weber-Fechner law does not hold,

$20.
A) Neither coupon will be of value to anyone since D) They will be
both require driving across town. seen as equally valuable
B) The coupon for the scarf since 50 percent is greater since both lead to a savings
than 5 percent. of $10.
C) The coupon for the jacket since $200 is greater than

67) Suppose Alyssa is willing to drive across town to save

50 percent on a soccer ball with a list price of $40. If Alyssa
is rational, this implies that she would

D) not be willing to
A) not be willing to drive across town to save 50 drive across town to save
percent on a skateboard with a list price of $100. $20 on a shirt with a list
B) be willing to drive across town to save 50 percent price of $60.
on a book with a list price of $20.
C) be willing to drive across town to save 5 percent on
a bike with a list price of $400.

68) Suppose Alyssa is not willing to drive across town to

save 50 percent on a soccer ball with a list price of $40. If
Alyssa behaves according to the predictions of the Weber-
Fechner law, this implies that she

D) would not be
A) would be willing to drive across town to save $40 willing to drive across
on a skateboard with a list price of $100. town to save $36 on a shirt
B) would not be willing to drive across town to save with a list price of $60.
$25 on a TV with a list price of $500.
C) would be willing to drive across town to save $25
on a video game with a list price of $50.

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69) Suppose Michael is willing to drive across town to
save 40 percent on a sweatshirt with a list price of $80. If
Michael is rational, this implies that he should

D) not be willing to
A) not be willing to drive across town to save 40 drive across town to save
percent on a microwave with a list price of $200. $35 on a shirt with a list
B) be willing to drive across town to save 40 percent price of $70.
on a book with a list price of $30.
C) be willing to drive across town to save 10 percent
on a guitar with a list price of $320.

70) Kendra is having difficulty deciding between two cars,

A and B. As shown in the accompanying diagram, A has
more cargo room than B, but lower gas mileage. Ideally
Kendra would like a car with both a lot of cargo room and
good gas mileage.

If Kendra behaves like most decision-makers, then the

addition of option C would

B) have no impact
A) decrease her likelihood of buying a car. on her choice of A and B.

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 C) increase her likelihood of picking A.
D) increase her likelihood of picking B.

71) Corey is having difficulty deciding between two

dishwashers, A and B. As shown in the accompanying If Corey behaves like
diagram, A makes more noise than B, but is cheaper. Ideally, most decision-makers, then
Corey would like a dishwasher that is both quiet and the addition of option C
inexpensive. would

D) increase his
A) decrease his likelihood of buying a dishwasher. likelihood of picking B.
B) have no impact on his choice of A and B.
C) increase his likelihood of picking A.

72) Natasha is having

difficulty deciding between
two jobs, A and B. As
shown in the
accompanying diagram, A
is closer to home than B
but doesn't pay as well.
Ideally, Natasha would like
a job that both pays well

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and is close to her home.
If Natasha behaves like
most decision-makers, then
the addition of option C
would

D) increase her
A) decrease her likelihood of accepting any job. likelihood of picking B.
B) have no impact on her choice of A and B.
C) increase her likelihood of picking A.

73) Brandon is having difficulty deciding between two addition of option Z would
jobs, X and Y. As shown in the accompanying diagram, X
entails a greater risk of injury than Y but pays more. Ideally,
Brandon would like a job that both pays well and does not
entail a high risk of injury.

If Brandon behaves like most decision-makers, then the

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 D) increase his
A) decrease his likelihood of accepting any job. likelihood of picking X.
B) increase his likelihood of picking Y.
C) have no impact on his choice of X and Y.

74) In situations where people make decisions with

perfectly predictable consequences, traditional economic
models cannot explain

D) what the
A) why people experience regret. rational choice should be.
B) how people maximize their utility.
C) how risk aversion influences decisions.

75) Traditional economic models _______ the fact that

people sometimes regret making decisions with perfectly
predictable consequences.

C) cannot explain
A) account for D) are supported by
B) can easily explain

76) The fact that people sometimes regret having made a

decision with perfectly predictable consequences

D) is a core
A) suggests that people like to be unhappy. assumption upon which
B) is a natural prediction of many traditional economic traditional economic
models. models are built.
C) cannot be explained by traditional economic
models.

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77) Impulse-control problems can arise when people

D) place too little

A) discount the future too little. weight on current costs and
B) discount the future too heavily. benefits.
C) place too much weight on future costs and benefits.

78) The tendency to experience losses as more painful

than the pleasures that result from gains of the same
magnitude is known as

D) regression to the
A) the availability heuristic. mean.
B) loss aversion.
C) the present-aim standard of rationality.

79) An estimation technique that begins with an initial

approximation (the anchor), which is then modified in
accordance with additional available information (the
adjustment) is known as

D) anchoring and
A) status quo bias. adjustment.
B) satisficing.
C) the representativeness heuristic.

80) _______ is the tendency to experience losses as more

painful than the pleasures that result from gains of the same
magnitude.

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 D) Loss aversion
A) The availability heuristic
B) Fungibility
C) The present-aim standard of rationality

81) Loss aversion is the tendency to experience losses as

gains of the same

A) just as painful as the pleasures that result from magnitude.
gains of the same magnitude. D) more painful
B) more painful than the pleasures that result from than gains of any
gains of the same magnitude. magnitude.
C) less painful than the pleasures that result from

82) Loss aversion is the tendency to

D) dislike gains,
A) weigh losses more heavily than gains. but enjoy losses.
B) weigh gains more heavily than losses.
C) enjoy gains, but dislike losses.

83) The present-aim standard of rationality is the variant

of the rational choice model that

modified in accordance
A) estimates the frequency of an event by the ease with additional available
with which it is possible to summon examples from memory. information.
D) permits greater
B) aims for adequate results because optimal results flexibility in assumptions
may necessitate excessive expenditure of resources. about preferences.
C) begins with an initial approximation, which is then

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84) Suppose Whitney is willing to pay $200 to buy a new
phone. Loss aversion implies that if Whitney already had just
bought the phone, you would

D) not be able to
A) have to pay her less than $200 to part with it. get her to part with it for
B) have to pay her more than $200 to part with it. any amount of money.
C) have to pay her exactly $200 to part with it.

85) Suppose Vincent is willing to pay $350 to buy a new

bike. Loss aversion implies that if Vincent had just bought the
bike, you would

D) not be able to
A) have to pay him less than $350 to part with it. get him to part with it for
B) have to pay him more than $350 to part with it. any amount of money.
C) have to pay him exactly $350 to part with it.

86) Suppose you would have to pay Alicia at least $150 to

get her to part with a ticket she just bought to see her favorite
band play next Friday. Loss aversion implies that if Alicia had
not yet bought the ticket, she would

D) no longer be
A) be willing to pay more than $150 for it. interested in purchasing it.
B) be willing to pay less than $150 for it.
C) be willing to pay exactly $150 for it.

87) Suppose you would have to pay Troy at least $12 to would
get him to part with his new water bottle. Loss aversion
implies that if Troy had not yet purchased the water bottle, he

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 D) no longer be
A) be willing to pay more than $12 to buy it. interested in buying it.
B) be willing to pay exactly $12 to buy it.
C) be willing to pay less than $12 to buy it.

88) Studies have shown that when people are asked to

imagine a hypothetical illness, the amount of money they say
they would be willing to pay to avoid getting the illness is
_______ they would be willing to pay for a cure if they were
already sick.

C) more than
A) unrelated to the amount D) less than
B) the same as

89) Evidence suggests that as the importance of what's at

stake grows, loss aversion

D) does not change.

A) is reversed.
B) becomes much less pronounced.
C) becomes even more pronounced.

90) Widespread behavioral evidence suggests that people

D) weigh losses
A) are unable to assess the relative value of gains and more heavily than gains.
losses.
B) place equal weight on gains and losses.
C) weigh gains more heavily than losses.

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91) The general resistance to change, often stemming from loss aversion, is known as

D) the Weber-
A) status quo bias. Fechner law.
B) regression to the mean.
C) the present aim standard of rationality.

92) _______ is the general resistance to change, often

stemming from loss aversion.

D) Anchoring and
A) Status quo bias adjustment
B) Regression to the mean
C) The present aim standard of rationality

93) Status quo bias is the

D) inefficiency that
A) general enthusiasm for change, often stemming stems from anchoring and
from regression to the mean. adjustment.
B) general resistance to change, often stemming from
loss aversion.
C) inefficiency that stems from constant change.

94) Because every policy change generates winners and

losers, loss aversion generates

D) anchoring and
A) status quo bias. adjustment.
B) regression to the mean.
C) fungibility.

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95) When it comes to enacting policy changes, loss
aversion often leads to status quo bias because

D) the resistance
A) people's estimates of their gains from the policy are from those who stand to
often too large. lose from the policy often
B) people's estimate of their losses from the policy are overwhelms the support
often too small. from those who stand to
C) the support from those who stand to gain from the gain.
policy often overwhelms the resistance from those who stand
to lose.

96) In the realm of public policy, loss aversion makes it

D) easy to identify
A) difficult to enact policy changes. which policies involve the
B) easy to enact policy changes. largest efficiency gains.
C) difficult to identify those who stand to lose from
policy changes.

97) Traditional economic models cannot explain why

anonymously.
A) some people buy expensive cars and others buy D) people buy
cheap cars. more of certain goods
B) people leave tips at restaurants where they when their income falls.
regularly dine.
C) people donate money to charity completely

98) The present aim standard of rationality accommodates a much _______ range of

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observed behavior than traditional economic models, but has been criticized because the
model is too _______.

D) narrower;
A) narrower; flexible inflexible
B) broader; inflexible
C) broader; flexible

99) The _______ accommodates a much broader range of

observed behavior than traditional economic models, but has
been criticized because virtually any bizarre behavior can be
explained by assuming people have a sufficiently strong taste
for it.

D) present aim
A) adaptive rationality standard standard of rationality
B) availability heuristic
C) ultimatum bargaining game

100) The present aim standard of rationality

because cooperating with

A) assumes that people's goals are themselves a choice others is irrational.
variable and that people's choices about which goals to pursue D) argues that
are made efficiently. people are only able
B) takes people's goals as given and assumes that behave rationally if they
people are efficient at pursuing whatever goals they happen to are aware of how their
hold at the moment of action. actions affect others.
C) assumes that people act in their own self-interest

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 their narrow self-interest.
A) assumes that people's goals are a choice variable. D) can be used to
B) only accounts for a narrow range of observed "explain" virtually any
behavior. bizarre behavior.
C) cannot explain why people do things that are not in

102) The adaptive rationality standard

because cooperating with

A) assumes that people's goals are themselves a choice others is irrational.
variable and that people's choices about which goals to pursue D) argues that
are made efficiently. people are only able
B) takes people's goals as given and assumes that behave rationally if they
people are efficient at pursuing whatever goals they happen to are aware of how their
hold at the moment of action. actions affect others.
C) assumes that people act in their own self-interest

103) According to the adaptive rationality standard,

people's goals are

D) fixed, and
A) a choice variable, and people may not be efficient people are often inefficient
at choosing which goals to pursue. at pursuing those goals,
B) a choice variable, and people's choices about which which explains why people
goals to pursue are made efficiently. experience regret.
C) fixed, and people are efficient at pursuing whatever
goals they happen to hold at the moment of action.

104) The _______ assumes that people choose efficient

means to achieve their ends, but it regards goals as objects of
choice that are subject to a similar efficiency requirement.

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 D) standard rational
A) present aim standard of rationality choice model
B) adaptive rationality standard
C) Weber-Fechner law

105) According to the adaptive rationality standard,

individuals

have.
A) are irrational if they choose to have preferences D) might rationally
that are not self-interested. choose to have preferences
B) always behave according to their own narrow self- that are not self-interested.
interest.
C) are unable to choose what kind of preferences to

106) According to the adaptive rationality standard, people

might choose to have unselfish preferences because

D) they have no
A) people sometimes make irrational choices. other choice.
B) doing so could be in their own best interest.
C) they do not know how to make efficient choices.

107) According to the adaptive rationality standard, one

reason people might rationally choose to have preferences that
are not narrowly self-interested is that

C) they do not
A) even rational people sometimes make irrational
choices.
B) doing so could help them solve commitment
problems.

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know how to act in their own self-interest.
D) they have no other choice.

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108) The _______ is a game in which the first player has
the power to confront the second player with a take-it-or-
leave-it offer.

D) repeated
A) Nash bargaining game prisoner's dilemma
B) matching pennies game
C) ultimatum bargaining game

109) A game in which the first player has the power to

confront the second player with a take-it-or-leave-it offer is
the

D) repeated
A) ultimatum bargaining game. prisoner's dilemma.
B) matching pennies game.
C) Nash bargaining game.

110) The ultimatum bargaining game is a game in which

other player.
A) the second player doesn't know the strategy choice D) both players
of the first player. give each other an
B) the first player confronts the second player with a ultimatum.
take-it-or-leave-it offer.
C) both players have a dominant strategy to cheat the

111) If a Proposer and a

Responder are asked to
split $100 in the ultimatum

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bargaining game, standard economic theory would predict that the Responder should

D) only accept an
A) reject any amount over $50. offer for exactly $50.
B) accept any amount offered by the Proposer.
C) reject any amount less than $50.

112) If a Proposer and a Responder are asked to split $100

in the ultimatum bargaining game, standard economic theory
would predict that the Proposer should offer the Responder

D) the smallest
A) exactly $25. dollar amount possible.
B) exactly $50.
C) the largest dollar amount possible.

113) In numerous experiments, researchers have found that

if a Proposer and a Responder are asked to split a fixed sum
on money in the ultimatum bargaining game, the Proposer
will, on average, offer the Responder

economic theory.
A) nothing. D) less than would
B) exactly the amount that would be predicted by be predicted by standard
economic theory. economic theory.
C) more than would be predicted by standard

114) In laboratory experiments, researchers have found that

the behavior of Proposers and Responders in the ultimatum
game is consistent with people

A) acting in their

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own narrow self-interest. D) not
B) valuing fairness. understanding the game.
C) behaving irrationally.

115) In laboratory experiments, the behavior of players in

the ultimatum game suggests that people

C) are deceitful.
A) act in their own narrow self-interest. D) value fairness.
B) have impulse control problems.

116) Traditional economic models assume that people care

about

D) relative
A) neither absolute nor relative consumption. consumption.
B) both absolute and relative consumption.
C) absolute consumption.

117) In traditional economic models, people

D) care more about

A) care about how their consumption compares to the losses in consumption than
consumption of others. gains in consumption.
B) do not care about how their consumption compares
to the consumption of others.
C) care only about the consumption of others.

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118) If people care about relative consumption rather than absolute consumption, then

resources.
A) their behavior will be consistent with traditional D) individuals'
economic models. decisions need not lead to
B) there is little need for government intervention in socially optimal outcomes.
markets.
C) their choices will lead to an efficient allocation of

119) Laws restricting gambling can be seen as an attempt to

limit the consequences of

D) impulse-control
A) regression to the mean. problems.
B) status quo bias.
C) anchoring and adjustment.

120) Government programs aimed at stimulating personal

savings

D) decrease
A) are designed to take advantage of the flaws in the economic efficiency if
availability heuristic. people have impulse-
B) help mitigate regression to the mean in most cases. control problems.
C) increase welfare if people discount the future too
heavily.

121) Consider these two hypothetical worlds:

If you would prefer to live
World A: You receive 100 units of Good X, while everyone in World A, this suggests
else receives 115. that to you, Good X is
World B: You receive 85 units of Good X, while everyone most likely a
else receives 70.

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 C) satisficing good.
A) nonpositional good. D) fungible good.
B) positional good.

122) Consider these two hypothetical worlds:

World A: You receive 22 units of Good X, while everyone

else receives 20.
World B: You receive 24 units of Good X, while everyone
else receives 26.

If you would prefer to live in World B, this suggests that to

you Good X is most likely

D) a heuristic good.
A) a nonpositional good.
B) a satisficing good.
C) a positional good.

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Answer Key

Test name: Chap 10_8e_Frank

1) A
2) C
3) B
4) A
5) A
6) D
7) B
8) A
9) D
10) C
11) D
12) D
13) B
14) C
15) D
16) D
17) C
18) D
19) C

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20) B
21) D
22) A
23) D
24) A
25) D
26) C
27) C
28) B
29) A
30) D
31) C
32) B
33) B
34) D
35) A
36) A
37) D
38) B
39) C
40) D

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41) D
42) A
43) B
44) D
45) A
46) A
47) C
48) B
49) B
50) C
51) D
52) D
53) A
54) D
55) B
56) C
57) B
58) C
59) B
60) A
61) B

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62) D
63) B
64) B
65) A
66) D
67) C
68) B
69) C
70) C
71) C
72) D
73) B
74) A
75) C
76) C
77) B
78) B
79) D
80) D
81) B
82) A

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83) D
84) B
85) B
86) B
87) C
88) C
89) C
90) D
91) A
92) A
93) B
94) A
95) D
96) A
97) C
98) C
99) D
100) B
101) D
102) A
103) B

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104) B
105) D
106) B
107) B
108) C
109) A
110) B
111) B
112) D
113) C
114) B
115) D
116) C
117) B
118) D
119) D
120) C
121) A
122) A

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