Chapter 10 — Quiz

Multiple choice

Q1. Bounded rationality (Herbert Simon) is the idea that: a) People are perfectly rational b) People are completely irrational c) People want to be rational but face cognitive constraints (limited time, attention, information) d) Only experts can be rational

Q2. Loss aversion is the finding that: a) People prefer losses to gains b) Losses hurt about twice as much as equivalent gains feel good c) People are equally responsive to gains and losses d) Losses don't affect decisions

Q3. The endowment effect describes: a) The value of an inheritance b) The tendency for people to value things they own more than the same things they don't own c) The value of higher education d) The value of corporate endowments

Q4. Present bias means: a) People remember the present better than the past b) People over-weight the present relative to the future c) People under-weight the present d) People have constant discount rates

Q5. Hyperbolic discounting describes: a) A constant discount rate over time b) A discount rate that is steeper near the present and flatter further out c) A discount rate that depends on income d) A discount rate that doesn't depend on time

Q6. The classic Kahneman-Tversky anchoring experiment showed: a) That people are good at random number estimation b) That people are influenced by an irrelevant initial number when making estimates c) That African countries are mostly in the UN d) That math is hard

Q7. Status quo bias is best illustrated by: a) The fact that retirement plan participation is much higher when enrollment is the default b) The fact that people change jobs frequently c) The fact that people prefer cash to credit d) The fact that people are loyal to brands

Q8. A framing effect is when: a) The same information presented differently produces different choices b) People prefer pictures to text c) People always pick the option with the most positive description d) Information is hidden

Q9. A "nudge" (Thaler and Sunstein) is: a) A regulation that forbids some options b) A feature of choice architecture that alters behavior without forbidding options or significantly changing economic incentives c) A subsidy d) A tax on an undesired behavior

Q10. Which of the following is NOT a nudge? a) Auto-enrollment in retirement plans b) Putting healthier foods at eye level c) Banning sugary drinks d) Opt-out organ donation

Q11. The behavioral lens is best understood as: a) A replacement for the standard economic model b) A complement to the standard model that helps you ask sharper questions about when its predictions hold c) A rejection of all economic theory d) A purely mathematical framework

Q12. Most economists today regard behavioral economics as: a) A fringe specialty b) A core area of mainstream economics, with three Nobel Prizes (Kahneman 2002, Thaler 2017, Banerjee/Duflo/Kremer 2019 partly for behavioral applications) c) An ideologically biased field d) An obsolete field

Short answer

SA1. State the loss aversion finding in your own words. Why is it inconsistent with the standard rational-actor model?

SA2. Why do people save less for retirement than the standard model predicts? Use the language of present bias.

SA3. Why do retirement plans with auto-enrollment (default-on) have much higher participation than plans requiring active sign-up?

SA4. Distinguish a nudge from a regulation and from a tax.

SA5. Why is "choice architecture is unavoidable" a key argument for thoughtful nudge design?

True / False

TF1. People are equally responsive to a $100 gain and a $100 loss. (True / False)

TF2. Hyperbolic discounting predicts that "I'll start exercising tomorrow" will be deferred indefinitely. (True / False)

TF3. Anchoring requires that the initial number be relevant to the question. (True / False)

TF4. Auto-enrollment in retirement plans is technically a nudge because it preserves freedom of choice. (True / False)

TF5. Behavioral economics is incompatible with the standard supply-and-demand model. (True / False)

Selected answers in appendices/answers-to-selected.md.