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| 1 | |
Which comment best describes the purpose of chapter 8 on cognitive limitations that effect behavior. Few other texts treat this material directly. |
| | A) | The integration of psychology into economics presents us with an entirely new way of doing economics. The old methods of rational choice are essentially obsolete. |
| | B) | Understanding our cognitive limitations will help us understand an area of our behavior that rational choice can not deal with effectively. |
| | C) | The power of rational choice analysis is especially evident in these areas of cognitive limitations because it predicts well even when people clearly behave in irrational ways. |
| | D) | Other social sciences like psychology study human behavior in order to describe and explain behavior. Only economists build models that are designed to predict what people will do. |
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| 2 | |
Which of the following best explains why people who budget carefully tend to spend less money? |
| | A) | Bounded rationality |
| | B) | The asymmetric value function |
| | C) | Hedonic framing |
| | D) | Out of pocket costs versus opportunity costs |
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| 3 | |
Which case best shows how marketing people use the asymmetric value function to their advantage. |
| | A) | They take full page adds on interior pages instead of half page adds on the front pages of sections. |
| | B) | They make a deal that is good only for one day rather than an indefinite period of time. |
| | C) | They bundle items together so the consumer must buy several things to get one item. |
| | D) | They give cash rebates rather than reduce the price of the item. |
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| 4 | |
If economists tend to be left-brained people, then |
| | A) | if you find a left-brained person and assume you have an economist, you are falling into the representative bias. |
| | B) | if you find an economist and assume you have a left-brained person, you are falling into the anchoring bias. |
| | C) | if a person is right-brained and an economist, he must have an asymmetric value function. |
| | D) | if a person is a right-brained economist, she will be more susceptible to the psychophysics of perception. |
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| 5 | |
Karl is a senior faculty member who bought his house 20 years ago. His neighbor, Carlos, just joined the faculty and for a similar house has mortgage payments that are three times what Karl pays. Recently Carlos commented that he wished that he had housing costs as low as Karl. This comment illustrates the problem of |
| | A) | considering out-of-pocket costs as full opportunity costs. |
| | B) | an asymmetric value function. |
| | C) | judgemental heuristics and biases. |
| | D) | the psychophysics of perception. |
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| 6 | |
Credit cards have reduced the pain of shopping, not only because they are convenient, but because |
| | A) | of the initially steep slope of the utility function for losses. |
| | B) | of the fact that credit card payments are not out of pocket loses. |
| | C) | people are risk averse. |
| | D) | the psychophysics of perception makes a $1000 bill seem small. |
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| 7 | |
In the late 1990's Sammy Sosa and Mark McGuire engaged in a dramatic home run race to beat each other and the all time season record. Most sports writers felt that if the record did not fall in that year it might stand for a long time to come. Yet the die-hard fans expected another record breaking year the following year. Which of the following concepts would tend to back the sports writer's view? |
| | A) | psychophysics of perception. |
| | B) | Regression to the mean |
| | C) | Bias of representativeness |
| | D) | Sports writers are risk lovers |
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| 8 | |
In my intermediate micro class the exams seem to get progressively more difficult for the students as the semester goes along. The material builds and the concepts become more complicated. Although I do not try to make the exams harder, I welcome this trend because students tend to be pleasantly surprised by their final course grade. What from this chapter would explain why they are surprised at how high a final grade they receive? |
| | A) | the concept of an asymmetric value function |
| | B) | the fact that earlier grades are sunk costs. |
| | C) | the idea of availability in memory as it relates to more recent events. |
| | D) | the fact that students are risk averse. |
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| 9 | |
The story of the tennis court decision at Cornell University illustrates that people are psychologically inclined to |
| | A) | take sunk costs into account when making decisions. |
| | B) | expect the worst. |
| | C) | overestimate losses and underestimate gains. |
| | D) | prefer rebates to price reductions. |
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| 10 | |
An asymmetric value function underlies which of the following behavior? |
| | A) | Buying most purchases with a credit card. |
| | B) | Wrapping three Christmas presents in one large box. |
| | C) | Mowing one's own lawn instead of paying the neighbor boy $8 to mow it, but at the same time refusing to mow the other neighbor's similar lawn for $20. |
| | D) | All of these examples illustrate asymmetrical value functions. |
| | E) | None of the above illustrate asymmetrical value functions. |
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| 11 | |
People often feel a sense of relief when they pay off their mortgage and have a debt free house. Which of the following is an accurate assessment of that feeling? |
| | A) | It is a false sense of relief because housing costs have not diminished at all. |
| | B) | It is a false sense of relief because the cash flow situation of the household budget has not improved at all. |
| | C) | It is a valid sense of relief because housing costs have fallen and the family is richer. |
| | D) | It is a valid sense of relief because it is always true that the less debt the better. |
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| 12 | |
My daughter recently purchased a new car. There was the sticker price and the dealer discount. There also was a $1000 manufacturers discount and a student $400 discount, plus a zero percent finance charge for a 36 month loan. All the options were already included on the sticker as standard equipment. This practice takes advantage of the psychology of |
| | A) | sunk costs. |
| | B) | Hedonic framing because of an asymmetric value system. |
| | C) | judgemental heuristics |
| | D) | anchoring and adjusting. |
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| 13 | |
The psychophysics of perception would be a reason why most people |
| | A) | get upset only when bills come but not when the receipts come later. |
| | B) | overestimate loses and underestimate gains. |
| | C) | fail to ignore sunk cost in a decision. |
| | D) | get upset when the toll on the highway doubles to 50 cents but ignore the price increase of a round of golf which goes form $25 to $26. |
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| 14 | |
My high school basketball team came out of the locker room in descending order of height. Most likely they were counting on ________________ to demoralize their opponents. |
| | A) | The psychophysics of perception. |
| | B) | The Anchoring and adjustment factor. |
| | C) | The choice under uncertainty factor. |
| | D) | An asymmetric value function. |
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| 15 | |
One of the sad aspects of the terrorist attacks was the way many people of Middle East decent were treated after the tragedy. Since probably 100% of the terrorists were from the Middle East many people mistrusted thousands of other folks who came from that region originally. This mistake is most likely due to biases in judgement related to |
| | A) | availability. |
| | B) | Anchoring and adjustment. |
| | C) | The psychophysics of perception. |
| | D) | Representativeness |
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| 16 | |
After playing 4 holes of golf without success I mysteriously rolled in a par. On the way to the next tee I calculated what my score would be if I pared the rest of the holes. I had fallen prey to the bias of |
| | A) | availability |
| | B) | representativeness |
| | C) | anchoring and adjustment |
| | D) | the psychophysics of perception. |
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