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Unformatted text preview: Chapter 13 - Behavioral Economics Chapter 13: Behavioral Economics Main Concepts and Learning Objectives This chapter focuses on behavioral economics. This includes discussion of empirical strategies employed by behavioral economists, analysis of departures from rational decision-making, and critical evaluation of the standard results regarding decisions that involve time, risk and strategy. The chapter concludes with information about the emerging field of neuroeconomics. Students who master the material presented in this chapter will be able to describe: • The theoretical and empirical gaps that behavioral economists seek to fill, • The contribution of behavioral economics, • The methods employed by behavioral economics, and • Results produced by behavioral economists. 13-1 Chapter 13 - Behavioral Economics Multiple Choice Quiz (10 questions) covering main points: 1. Behavioral economists seek to enrich economic analysis by considering two aspects of real-world decision-making that have not been included in the standard models presented in previous chapters. These two issues are: a. Standard economic theory is incorrect and should be discarded. b. People care about issues such as fairness or status – that involve comparison of their own well-being with the well-being of others. c. Some decisions are mistakes. d. Both b and c. 2. The phenomenon known as anchoring may cause people to make some decisions that are not fully rational. a. Anchoring may occur in situations in which people do not have sufficient information to make an informed and rational decision. b. Anchoring occurs when people are susceptible to the power of suggestion. c. The significance of anchoring remains unclear. d. All of the above 3. The quality of retirement savings decisions made by American working adults has critical public policy implications. If the working baby boomers do not save enough to fund a reasonable – or a minimum – standard of living during retirement, political pressure may build for taxpayer-funded programs. The evidence presented in this chapter indicates that: a. Americans are making rational and fully informed retirement savings decisions. b. Americans may not be making rational and fully informed retirement savings decisions. 4. Mary saved only $50,000 by age 65. (With life expectancy equal to about 85, she will need to live on this money for 20 years.) She intended to save more, alternate uses of the money (Hawaiian vacation, kitchen remodeling, etc.) seemed more important at the time. Now Mary regrets the decisions she made about present vs. future consumption. Mary’s primary decision process issue was: a. dynamic inconsistency....
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This note was uploaded on 04/06/2011 for the course ECON 3332 taught by Professor Craig during the Spring '11 term at Rensselaer Polytechnic Institute.
- Spring '11