Final exam econ 115 practice.pdf

# Models of time inconsistent preferences can be used

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18. Models of time-inconsistent preferences can be used to explain THE PREVALENCE OF LOW INTRODUCTORY RATES ON CREDIT CARD OFFERS, THE PREVALENCE OF MONTHLY OR ANNUAL FEES IN HEALTH CLUBS, AND THE USE OF REHABILITATION CENTERS IN TREATING ADDICTS 19. Discounts in stores can exploit which of the following behavioral biases FAIRNESS CONCERNS, MENTAL ACCOUNTING, AND FRAMING 20. Which of the following violates utility maximization? INTRANSITIVITY 21. Which of the following violate expected utility maximization? INTRANSITIVITY, FRAMING, AND ALLAIS PARADOX

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22. Which of the following models assume expected utility maximization? NASH EQUILIBRIUM IN MIXED STRATEGIES 23. Ann prefers coffee to soda, soda to juice, and juice to coffee. These preferences violate TRANSITIVITY 24. Context effects can be generated by SOCIAL RULES, CHOICE AVOIDANCE WHEN “NO CHOICE” IS VIEWED AS ANOTHER FEASIBLE ALTERNATIVE, AND 1/N-HEURISTIC 25. Confirmatory bias can explain OVERCONFIDENCE, EXCESS TRADING (MAKING TOO MANY TRADES THAT PRODUCE INFERIOR RETURN ON AVERAGE), AND POLARIZATION EFFECT 26. A person buys a lottery ticket with negative expected value as well as costly insurance for relatively small risks, like scratching a rental car. This behavior can be best explained by PROSPECT THEORY 27. Which utilities for money imply risk neutrality for all gambles with positives payoffs z? U (A) u(z) = 2z ; (B) u(z) = 1000z − 1; (C) u(z) = 1000 − z; or none of the above 28. The expected utility model can accommodate (A) risk aversion; (B) non-monetary payoffs; (C) buying health insurance; ( D) all of the above. 29. The expected value model is motivated by (A) risk aversion; (B) the law of small numbers; (C) the law of large numbers; (D) none of the above. 30. The Independence Axiom is (A) an assumption of the expected utility model; (B) revealed by the Allais Paradox; (C) a common behavioral pattern; (D) all of the above. 31. The value function v(x) in the prospect theory (A) is convex for moderate losses; (B) is concave for gains; (C) has smaller marginal utility for gains than for similar losses; (D) all of the above. 32. Which of the following is a behavioral bias in the evaluation of probabilities? (A) denominator effect; (B) gambler’s fallacy; (C) confirmatory bias; (D) all of the above 33. The Allais Paradox violates (A) the Independence Axiom ; (B) completeness; (C) risk aversion; (D) all of the above. 34. The Ellsberg Paradox illustrates (A) objective probabilities; (B) reference dependence; (C) that some choices cannot be represented by any numerical probabilities; (D) that Independence axiom can be violated 35. Mental accounting can be used to explain (A) higher savings in separate retirement accounts; (B) high willingness to spend on credit cards; (C) holding depreciating stocks longer than appreciating ones; (D) all of the above 36. The empirical evidence in the ultimatum bargaining games shows that people often reject offers that are smaller than \$2 out of a \$10 endowment. This behavior can be explained by (A) the standard economic model of self-interest; (B) altruism; (C) the Charness-Rabin model of altruism and reciprocity; (D) none of the above.
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