Question 1

Studies of human decision-making have detected systematic mistakes that people make. Which of the following have been detected?
A)people are overconfident
B)people give too much weight to a small number of vivid observations
C)people are reluctant to change their minds
D)All of the above are correct.

Accepted Answer

All of the above have been detected as systematic mistakes in human decision-making. Studies have shown that people are often overconfident in their abilities and beliefs, leading them to take risks or make decisions without considering all the necessary information. Additionally, people tend to give too much weight to a small number of vivid observations, ignoring other important data that would provide a more accurate picture of the situation. Finally, people can be reluctant to change their minds even when presented with new evidence or information that contradicts their existing beliefs or decisions.

Question 2

Evidence from studies of workers' choices on whether to participate in 401(k) plans suggests that the workers' behavior appears to exhibit
A)indifference.
B)ignorance.
C)inertia.
D)indecision.

Accepted Answer

Studies have shown that when given the option to participate in 401(k) plans, many workers exhibit inertia and fail to make a decision, instead sticking with the default option or not participating at all. This suggests that workers may not be actively considering their retirement savings options, but rather going with what is easiest or requires the least effort to change.

Question 3

Economic theory assumes people are always rational. Yet observation indicates that people do not always behave rationally. Which of the following is not a systematic mistake people make in their decisionmaking?
A)People often interpret information to fit beliefs already held.
B)People place too much emphasis in their decisionmaking on a few extreme situations of which they are aware.
C)People tend to view current prices differently than they view future prices.
D)People are too sure of their own abilities.

Accepted Answer

This is actually a rational behavior known as time preference, where people place higher value on present goods and services over future ones. It is a consistent and predictable behavior, rather than a systematic mistake. The other choices, such as confirmation bias, availability bias, and overconfidence bias, are all examples of systematic mistakes people make in their decision-making that go against the assumption of rationality.

Question 4

Brittany decides to save $50 from each paycheck so that she can go on a Spring Break trip with her college roommates. However, when she gets paid this week, she spends all of her money on new clothes. Which of the following insights into human behavior does Brittany exhibit?
A)People are overconfident.
B)People care about fairness.
C)People are reluctant to change their minds.
D)People are inconsistent over time.

Accepted Answer

Brittany exhibits the behavior of inconsistency over time by not saving $50 from her paycheck as she had planned.

Question 5

People interpret evidence to confirm beliefs they already hold. This statement is an example of which of the following systematic mistakes that people make?
A)people are overconfident
B)people give too much weight to a small number of vivid observations
C)people are reluctant to change their minds
D)All of the above are correct.

Accepted Answer

The statement suggests that people have a confirmation bias that leads them to interpret evidence in a way that confirms their pre-existing beliefs, which means they are reluctant to change their minds. This is a hallmark of confirmation bias, making option C the correct answer. Options A and B are not entirely accurate as they refer to other systematic mistakes people make that are different from confirmation bias.

Question 6

Domingo is a contestant on a trivia quiz show. For every state capital he can correctly identify, he will win $1,000. However, before identifying any capitals, he must decide how many he thinks he can correctly identify. If he cannot identify as many as he has wagered, Domingo will not win any money. Suppose Domingo says that he can correctly identify 42 state capitals for a potential payoff of $42,000. According to studies of human decision-making, what is most likely to happen?
A)Domingo will be able to identify 42 state capitals and he will win $42,000.
B)Domingo will be able to identify fewer than 42 state capitals and will not win any money.
C)Domingo will not be able to identify any state capitals and will not win any money.
D)Domingo will choose to save all of the money he wins on the quiz show for his retirement.

Accepted Answer

This phenomenon is known as the planning fallacy, which is a tendency to underestimate the time, costs, and risks associated with a project or task. Studies have shown that people consistently overestimate their ability to complete tasks on time, including identifying state capitals. Therefore, it is most likely that Domingo will not be able to identify all 42 state capitals and will not win any money.

Question 7

Students of microeconomic principles often say they are going to study "tonight," because the only way to pass the exam is to study some every night. When "tonight" comes, some students choose to do something else. Come exam day, these students do not do well on their exam. This observation is an example of how people
A)are inconsistent over time.
B)are consistent over time.
C)are mainly interested in fairness.
D)are rational.

Accepted Answer

This observation shows how people can be inconsistent over time, as the students initially planned to study but then chose to do something else instead.

Question 8

Based on the studies of human decision making, which of the following statements is correct?
A)Most people are not bothered by perceived unfairness as long as they receive some compensation, even if the amount is very small.
B)Most people are very willing to change their minds.
C)Many people's preferences are inconsistent over time.
D)All of the above are correct.

Accepted Answer

The statement that many people's preferences are inconsistent over time is consistent with research on human decision making, but the other two statements are not consistently supported by research. Therefore, C is the best choice.

Question 9

People interpret evidence to confirm beliefs they already hold. This statement is an example of which of the following systematic mistakes that people make?
A)people are overconfident
B)people give too much weight to a small number of vivid observations
C)people are reluctant to change their minds
D)All of the above are correct.

Accepted Answer

This statement is an example of confirmation bias, which refers to people's tendency to selectively seek out and interpret information in a way that confirms their existing beliefs or hypotheses. Option A (overconfidence) and Option B (availability heuristic) refer to other types of cognitive biases.

Question 10

Martha routinely has her prescriptions filled at her local SVC pharmacy. Each time that Martha goes to pick up a prescription, there is some problem and Martha has to return to the pharmacy later to get the prescription. Martha finds these return trips very annoying and time-consuming, but continues to request that her doctor send her prescriptions to this pharmacy even though there are several other options in her town. Which of the following is correct?
A)Economists would say that Martha is behaving rationally.
B)Martha's behavior appears to exhibit inertia.
C)Martha's behavior is inconsistent over time.
D)Martha gives too much weight to a small number of vivid observations.

Accepted Answer

Martha is exhibiting inertia, which is the tendency to stick with past choices even when better options are available. Despite experiencing problems with the SVC pharmacy, Martha continues to use it out of habit or familiarity.

Question 11

Some of the systematic mistakes that people make include
A)being overconfident.
B)placing too much weight on events that are more vivid compared to those with greater statistical probability.
C)being generally unwilling to change their minds.
D)All of the above are correct.

Accepted Answer

All of the above are correct. People tend to be overconfident in their abilities and judgments, which can lead to mistakes. They are also often influenced more by vivid events than by statistics or probabilities, which can cause them to make incorrect decisions. Additionally, people can be stubborn and resistant to changing their beliefs or opinions, even in the face of new evidence.

Question 12

A survey of 1,500 frequent restaurant patrons revealed that, Chang Cheng, a local Chinese restaurant, offers high-quality food at low prices. Based on one dining experience, a restaurant critic gave Chang Cheng a poor review, saying the food was not very good. As a result, you decide not to dine at Chang Cheng. This decision is an example of which of the following systematic mistakes that people make when making decisions?
A)People are overconfident.
B)People give too much weight to a small number of vivid observations.
C)People are reluctant to change their minds.
D)All of the above are correct.

Accepted Answer

This decision is an example of the availability heuristic, where people give too much weight to a small number of vivid observations (in this case, the critic's review) and ignore the larger sample of information (the positive survey results from frequent patrons). Option A (overconfidence) and Option C (reluctance to change minds) may also be systematic mistakes, but they are not demonstrated in this scenario.

Question 13

Your city newspaper publishes a "Best of" poll that lists its readers' favorite restaurants. Mundo Bar and Grill is ranked as the best casual restaurant. Your best friend had dinner at Mundo Bar and Grill last week and commented that the food was mediocre and the service was slow. You decide not to have dinner at Mundo Bar and Grill based on your friend's experience. Your decision illustrates that people
A)are reluctant to change their minds.
B)are overconfident.
C)give too much weight to a small number of vivid observations.
D)are satisficers.

Accepted Answer

This scenario demonstrates the phenomenon of people giving too much weight to a small number of vivid observations, in this case your friend's negative experience at the restaurant. This bias can cause people to overlook the larger body of evidence, in this case the fact that Mundo Bar and Grill was ranked as the best casual restaurant by the city newspaper's readers. People may also rely on anecdotal evidence from friends or acquaintances rather than seeking out more objective information, such as online reviews or professional ratings. This can lead to missed opportunities and poor decision-making.

Question 14

Sam needs to have his car serviced. There is an auto repair shop located nearby that does a lot of business and has an online rating of 4 out of 5 stars. Sam takes his car to be serviced and thinks the service person is grumpy and that his car is still not running as well as it could be. Sam then makes a point of telling his friends not to use the repair shop. Sam's actions illustrate which of the following systematic mistakes that people make when making decisions?
A)People are overconfident.
B)People give too much weight to a small number of vivid observations.
C)People are reluctant to change their minds.
D)All of the above are correct.

Accepted Answer

Sam's decision to not recommend the auto repair shop based on his one negative experience illustrates the systematic mistake of giving too much weight to a small number of vivid observations. He is not considering the overall rating of the shop or the fact that his experience could be an isolated incident.

Question 15

Some studies show that even students who earned high grades in science classes accept disproven explanations for scientific phenomena. These disproven explanations had been acquired prior to the science classes. These studies provide some support for which of the following systematic mistakes that people make?
A)people are overconfident
B)people give too much weight to a small number of vivid observations
C)people are reluctant to change their minds
D)All of the above are correct.

Accepted Answer

The fact that students who earned high grades in science classes still held onto disproven explanations acquired prior to the classes suggests that people are reluctant to change their minds, even when presented with scientific evidence that contradicts their prior beliefs. This mistake is known as confirmation bias.

Question 16

Studies of human decision-making show that
A)firms are less likely to maximize profits than consumers are to maximize utility.
B)firms are more likely to maximize profits than consumers are to maximize utility.
C)people are irrational more often than they are rational.
D)people are reluctant to change their minds.

Accepted Answer

The answer of Studies of human decision-making show that
A)firms are...

Question 17

Suppose a group of people read an article on capital punishment. Prior to reading the article, 60% of the members of the group were opposed to capital punishment, while 40% of the members of the group were in favor of capital punishment. According to studies of human decision-making, which of the following is likely?
A)After reading the article, all members of the group oppose capital punishment.
B)After reading the article, all members of the group are in favor of capital punishment.
C)After reading the article, 60% of the members of the group are opposed and 40% of the members of the group are in favor of capital punishment.
D)The members of the group would elect a representative in favor of capital punishment.

Accepted Answer

It is unlikely that all members of the group will change their opinion on capital punishment after reading the article. Research shows that people tend to selectively seek out information that confirms their existing beliefs, a phenomenon known as confirmation bias. Therefore, it is more likely that some members of the group will remain opposed to capital punishment after reading the article, while others may become more in favor of it. The proportions of those in favor and opposed may shift slightly, but it is unlikely that there will be a complete reversal. Choice D is not necessary based on the information given and is not a likely outcome.

Question 18

Don is convinced that it would be best if the U.S. was on a gold standard. He enthusiastically reads any editorials or articles that confirm his view. He frequently dismisses editorials and articles that argue against the gold standard because he presumes they are flawed or written by "crackpots." Don's behavior most clearly illustrates which of the following systematic mistakes that people make?
A)people are overconfident
B)people give too much weight to a small number of vivid observations
C)people are reluctant to change their minds
D)All of the above are correct.

Accepted Answer

Don's behavior most clearly illustrates the systematic mistake of being reluctant to change his mind or beliefs, even in the face of counterarguments or evidence. He dismisses opposing views without giving them enough consideration or weight, which is characteristic of the confirmation bias. While overconfidence and the availability heuristic (i.e., giving too much weight to vivid examples) can also influence people's opinions, they are not as salient in this scenario as Don's bias towards the gold standard.

Question 19

Studies of human decision making reveal several systematic mistakes people make. Which of the following is not an example of one of these mistakes?
A)Tom tells everyone he's sure he can run a 5K in twenty-five minutes, but then tries a couple of times and takes over thirty minutes.
B)Kate hears a news report about five people dying from a tornado in Kansas and decides to cancel her plans to visit her aunt there.
C)Randi is a strong proponent of raising the minimum wage. She reads a research report on the effects of increasing the minimum wage and begins to doubt her previous thinking.
D)Jenny is shopping for a new car and has found that Hondota cars consistently get high quality ratings. Her friend had trouble with her Hondota, so Jenny decides not to purchase a Hondota.

Accepted Answer

Option C is not an example of a systematic mistake in decision making. It is an example of individuals correcting their previous beliefs based on new evidence or information. A, B, and D are all examples of systematic mistakes in decision making - A is an example of overconfidence bias, B is an example of availability heuristic, and D is an example of the halo effect.

Question 20

Riley travels a great deal, and over the past several years he has read dozens of reviews of hotel chains, all of which rave about the clean rooms and great service at Comeon Inns. Last month, Riley checked into a room at a Comeon Inn for the first time, only to find the room filthy and the service lousy. He decided the Comeon Inn chain is inferior to other hotel chains.
A)Riley was irrational to have believed the reviews that he had read.
B)Riley was rational to have changed his mind about Comeon Inns based on his one experience.
C)Riley is an example of someone who gives too much weight to a small number of vivid observations.
D)Riley is an example of someone who is reluctant to change his mind.

Accepted Answer

Riley's experience is an example of the availability heuristic, where people give more weight to a small number of vivid observations - in this case, his personal experience at one Comeon Inn - rather than the larger body of evidence (i.e., the dozens of positive reviews) that he had previously encountered. It is possible that his particular experience was an outlier and not representative of the chain as a whole. Therefore, it is not rational for Riley to conclude that Comeon Inns is inferior based on one negative experience.

Quiz 22: Frontiers in Microeconomics

Studies of human decision-making have detected systematic mistakes that people make. Which of the following have been detected?

Evidence from studies of workers' choices on whether to participate in 401(k) plans suggests that the workers' behavior appears to exhibit

Economic theory assumes people are always rational. Yet observation indicates that people do not always behave rationally. Which of the following is not a systematic mistake people make in their decisionmaking?

Brittany decides to save $50 from each paycheck so that she can go on a Spring Break trip with her college roommates. However, when she gets paid this week, she spends all of her money on new clothes. Which of the following insights into human behavior does Brittany exhibit?

People interpret evidence to confirm beliefs they already hold. This statement is an example of which of the following systematic mistakes that people make?

Based on the studies of human decision making, which of the following statements is correct?

People interpret evidence to confirm beliefs they already hold. This statement is an example of which of the following systematic mistakes that people make?

Some of the systematic mistakes that people make include

Studies of human decision-making show that

Studies of human decision making reveal several systematic mistakes people make. Which of the following is not an example of one of these mistakes?