Question 1

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

Accepted Answer

Loss aversion is the tendency to experience losses as more painful than the pleasures that result from gains of the same magnitude. In this case, losing the bike would be more painful than the pleasure associated with getting the bike, so you would have to pay Vincent more than $350 to part with it.

Question 2

Loss aversion is the tendency to:
A)weigh losses more heavily than gains.
B)weigh gains more heavily than losses.
C)enjoy gains, but dislike losses.
D)dislike gains, but enjoy losses.

Accepted Answer

The tendency to experience losses as more painful than the pleasures that result from gains of the same magnitude is known as loss aversion.

Question 3

In situations where people make decisions with perfectly predictable consequences, traditional economic models cannot explain:
A)why people experience regret.
B)how people maximize their utility.
C)how risk aversion influences decisions.
D)what the rational choice should be.

Accepted Answer

Traditional economic models rule out the possibility that people might regret having chosen behaviors whose consequences were perfectly predictable.

Question 4

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 should:
A)not be willing to drive across town to save 50 percent on a skateboard with a list price of $100.
B)be willing to drive across town to save 50 percent 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.
D)not be willing to drive across town to save $20 on a shirt with a list price of $60.

Accepted Answer

If Alyssa is willing to drive across town to save 50 percent on a soccer ball that costs $100, this implies that she should be willing to drive across town whenever her savings from doing so is at least $20. Thus, she should be willing to drive across town to save 5 percent on a bike that costs $400.

Question 5

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

Accepted Answer

If Michael is willing to drive across town to save 40 percent on a sweatshirt that costs $80, this implies that he should be willing to drive across town whenever his savings from doing so is at least $32. Thus, he should be willing to drive across town to save 10 percent on a guitar that costs $320.

Question 6

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 both with a lot of cargo room and good gas mileage.  
  If Kendra behaves like most decision-makers, then the addition of option C would:
A)decrease her likelihood of buying a car.
B)have no impact on her choice of A and B.
C)increase her likelihood of picking A.
D)increase her likelihood of picking B.

Accepted Answer

Evidence suggests that in situations like this, the fact that people find it easy to pick option A over option C makes them more likely to pick option A over option B.

Question 7

Brandon is having difficulty deciding between two 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 addition of option Z would:
A)decrease his likelihood of accepting any job.
B)increase his likelihood of picking Y.
C)have no impact on his choice of X and Y.
D)increase his likelihood of picking X.

Accepted Answer

Evidence suggests that in situations like this, the fact that people find it easy to pick option Y over option Z makes them more likely to pick option Y over option X.

Question 8

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

Accepted Answer

Loss aversion is the tendency to experience losses as more painful than the pleasures that result from gains of the same magnitude. In this case, losing the phone would be more painful than the pleasure associated with getting the phone, so you would have to pay Whitney more than $200 to part with it.

Question 9

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 and is close to her home.  If Natasha behaves like most decision-makers, then the addition of option C would:
A)decrease her likelihood of accepting any job.
B)have no impact on her choice of A and B.
C)increase her likelihood of picking A.
D)increase her likelihood of picking B.

Accepted Answer

Evidence suggests that in situations like this, the fact that people find it easy to pick option B over option C makes them more likely to pick option B over option A.

Question 10

Suppose you would have to pay Troy at least $12 to get him to part with his new water bottle. Loss aversion implies that if Troy had not yet purchased the water bottle, he would:
A)be willing to pay more than $12 to buy it.
B)be willing to pay exactly $12 to buy it.
C)be willing to pay less than $12 to buy it.
D)no longer be interested in buying it.

Accepted Answer

Loss aversion is the tendency to experience losses as more painful than the pleasures that result from gains of the same magnitude. In this case, losing the water bottle would be more painful than the pleasure associated with getting the water bottle, so he would be willing to pay less than $12 to buy it.

Question 11

________ is the tendency to experience losses as more painful than the pleasures that result from gains of the same magnitude:
A)The availability heuristic
B)Fungibility
C)The present-aim standard of rationality
D)Loss aversion

Accepted Answer

The tendency to experience losses as more painful than the pleasures that result from gains of the same magnitude is known as loss aversion.

Question 12

Loss aversion is the tendency to experience losses as:
A)just as painful as the pleasures that result from gains of the same magnitude.
B)more painful than the pleasures that result from gains of the same magnitude.
C)less painful than the pleasures that result from gains of the same magnitude.
D)more painful than gains of any magnitude.

Accepted Answer

The tendency to experience losses as more painful than the pleasures that result from gains of the same magnitude is known as loss aversion.

Question 13

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

Accepted Answer

Loss aversion is the tendency to experience losses as more painful than the pleasures that result from gains of the same magnitude. In this case, losing the ticket would be more painful than the pleasure associated with getting the ticket, so she would be willing to pay less than $150 to buy it.

Question 14

Evidence suggests that as the importance of what's at stake grows, loss aversion:
A)is reversed.
B)becomes much less pronounced.
C)becomes even more pronounced.
D)does not change.

Accepted Answer

Loss aversion is the tendency to experience losses as more painful than the pleasures that result from gains of the same magnitude. Evidence suggests that as the importance of what's at stake grows, loss aversion becomes even more pronounced.

Question 15

Traditional economic models ________ the fact that people sometimes regret making decisions with perfectly predictable consequences.
A)account for
B)can easily explain
C)cannot explain
D)are supported by

Accepted Answer

Traditional economic models rule out the possibility that people might regret having chosen behaviors whose consequences were perfectly predictable.

Question 16

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

Accepted Answer

Loss aversion is the tendency to experience losses as more painful than the pleasures that result from gains of the same magnitude. In this setting, people might perceive the loss from becoming sick as more painful than the gain from obtaining a cure. Indeed, 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 more than they would be willing to pay for a cure if they were already sick.

Question 17

The tendency to experience losses as more painful than the pleasures that result from gains of the same magnitude is known as:
A)the availability heuristic.
B)loss aversion.
C)the present-aim standard of rationality.
D)regression to the mean.

Accepted Answer

The tendency to experience losses as more painful than the pleasures that result from gains of the same magnitude is known as loss aversion.

Question 18

Corey is having difficulty deciding between two dishwashers, A and B. As shown in the accompanying diagram, A makes more noise than B, but is cheaper. Ideally, Corey would like a dishwasher that is both quiet and inexpensive.  If Corey behaves like most decision-makers, then the addition of option C would:
A)decrease his likelihood of buying a dishwasher.
B)have no impact on his choice of A and B.
C)increase his likelihood of picking A.
D)increase his likelihood of picking B.

Accepted Answer

Evidence suggests that in situations like this, the fact that people find it easy to pick option A over option C makes them more likely to pick option A over option B.

Question 19

Impulse control problems can arise when people:
A)discount the future too little.
B)discount the future too heavily.
C)place too much weight on future costs and benefits.
D)place too little weight on current costs and benefits.

Accepted Answer

Compelling evidence from psychology suggests that expressions of regret may often be genuine, that people often have difficulty waiting for a larger, better reward when an inferior reward is available immediately.

Question 20

The fact that people sometimes regret having made a decision with perfectly predictable consequences:
A)suggests that people like to be unhappy.
B)is a natural prediction of many traditional economic models.
C)cannot be explained by traditional economic models.
D)is a core assumption upon which traditional economic models are built.

Accepted Answer

Traditional economic models rule out the possibility that people might regret having chosen behaviors whose consequences were perfectly predictable.

Quiz 10: An Introduction to Behavioral Economics

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:

Loss aversion is the tendency to:

In situations where people make decisions with perfectly predictable consequences, traditional economic models cannot explain:

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 should:

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

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:

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

________ is the tendency to experience losses as more painful than the pleasures that result from gains of the same magnitude:

Loss aversion is the tendency to experience losses as:

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:

Evidence suggests that as the importance of what's at stake grows, loss aversion:

Traditional economic models ________ the fact that people sometimes regret making decisions with perfectly predictable consequences.

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.

The tendency to experience losses as more painful than the pleasures that result from gains of the same magnitude is known as:

Impulse control problems can arise when people:

The fact that people sometimes regret having made a decision with perfectly predictable consequences: