ECONOMY 201 – Irrational behavior may include which of the following assumptions

| April 14, 2018

1/Irrational behavior may include which of the following assumptions?correct perceptions of probabilityconsistencies in decision makinga and bnone of these2 /Bounded rationality can be understood throughI. limited informationII. limited brain processing capabilityIII. long decision-making timesIV. short decision-making timesI and III, II, and IIII, II, and IVI, II, III, and IV3/ Difficulty in assessing probabilities is best exemplified byplayers working together at a game of blackjack.playing a game when the expected value is positive.choosing door 2 after door 1 has been revealed, when your original choice was door 3.none of these.4/ Which statement best exemplifies a status quo bias?Employees at a company refuse to upgrade to new equipment because it would require over 30 hours of work to learn the more productive equipment.Customers do not enroll in a credit card rewards program that causes them to have an increase in interest rates and other fees.Apple iOS 6 users do not upgrade to iOS 7 because they do not like the new design and are wary of known stability issues.A country engages in open trade to promote exports and imports, even at the cost of thousands of jobs5/ While at the grocery store you see two packages of beef. One package has a label that reads 90% lean. The other package has a label that reads 10% fat. You opt for the 90% package. This is a classic example ofbait and switch.the framing effect.the priming effect.the status quo bias.6/ LeBron James scored 16 points in the third period. In the fourth period, the basketball was given to Dwayne Wade instead of Lebron James. Their coach is NOT subject tothe gambler’s fallacy.the hot-hand fallacy.bounded rationality.the scoring fallacy.7/ Lee saves most of his money from his paycheck; he forgoes restaurant meals, new clothes, and a new car, and he lives in a small one-bedroom apartment. He understands that his utility is low now. However, his ______________ will give him _____ utility in the future.a/intertemporal decision making; higherb/intertemporal decision making; lowerc/planning; lowerd/ time-preference decision making; higher8/ Your friend suggests that you play the lottery, and you win. Your friend wants some of the winnings, since it was her suggestion. You offer her 0.005% of $10,000 or nothing. This is an example of ____________ and your friend will ____________.a game of chance; always accept the offera game of chance; almost always reject the offerthe ultimatum game; always accept the offerthe ultimatum game; almost always reject the offer9/ A political poll wants to influence voters toward the governor Joe Politician. In his past term, Joe was successful at increasing jobs and income. In what order should these questions be asked to prime the voters?I. Are you happier today compared to a year ago?II. Have you noticed an increase in your income in the past two years?III. Has Joe Politician done a good job as your governor?I, II, IIIII, I, IIIIII, I, IIII, III, I10/ If you prefer a gamble with a lower expected value and potentially higher winnings, you arerisk averse.risk neutral.a risk taker.a winnings maximizer.11/ You are normally a risk-averse person. However, you need some extra money this month to make ends meet. You decide to play the Powerball lottery. Economists would say that you have had aa/change of heart.b/preference reversal.c/risk reversal.d/ change in risk tolerance.12/ If the perceived utility and risk you get from winning $1,000 is different from the perceived utility and risk you get from losing $1,000, then your behavior is consistent withperceived utility theory.preference reversal.prospect theory.subjective-evaluation theory.13/ Assume that game 1 has an expected value of $10 and game 2 has an expected value of $5. A risk-averse person would prefera sure thing of $4 in game 2, and a risk-neutral person would play game 1.a sure thing of $4 in game 2, and a risk-neutral person would play game 2.to play game 1 over a sure thing.to play game 2 over a sure thing.14/ Annie is excited about a $500 income tax return and is already contemplating which shoes to purchase. Annie is exhibitingstrongly positive time preferences and preference reversal.strongly positive time preferences and prospect theory.weakly positive time preferences and preference reversal.weakly positive time preferences and prospect theory.15/ You have an eight-sided fair die. You can roll the die with a chance to win $1,000 if it lands on 5, or take the sure thing of $100. The expected value of the game is$125, and you roll the die if you are risk averse.$125, and you take the sure thing if you are risk averse.$125, and you take the sure thing if you are a risk taker.$167, and you roll the die if you are a risk taker.

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