Questions and Answers of Behavioral Economics

What do empirical studies indicate regarding the use of incentive contracts in the labor market?
Explain why the difference between social norms and market norms is important for public policy. What sort of mistakes do governments tend to make in this regard?
In what way are spiteful preferences asymmetrical?
What is meant by costly signaling theory? What may it help to explain?
What do behavioral studies indicate regarding IA models versus reciprocity models in terms of explanation and prediction?
Explain the features of PGT, giving two examples of situations where it is relevant.
Explain what is meant by the crowding out of intrinsic incentives, giving two examples.
Explain the difference between IA models and reciprocity models.
Explain the differences between the Fehr–Schmidt and Bolton–Ockenfels models of inequality-aversion.
Explain the term ‘strong reciprocity’, and why it is an important concept.
What factors are relevant in determining the fairness of a transaction?
What are social preferences?
Explain what is meant by EWA learning.
Explain what is meant by a pooling equilibrium and the circumstances under which it may occur.
Explain the role of signaling in games.
Explain why equilibria in bargaining games are often different from those predicted by SGT.
Explain the meaning of focal points, and the strategy implications.
Explain the main findings of the study by Goeree and Holt (2001).
Explain what is meant by a mixed strategy equilibrium, and its implications for optimal strategy.
Explain the structure of the prisoner’s dilemma (PD) game, and show how its equilibrium is determined in SGT.
Compare the concept of dominant strategy equilibrium with Nash equilibrium.
Explain what is meant by a dominant strategy equilibrium.
Explain what is meant by the term ‘nudge’ as far as government policy is concerned, giving examples.
Discuss the role of neuroeconomic evidence in understanding and developing models of intertemporal decision-making.
Explain the meaning of the term commitment in connection with self-control problems, and discuss its role in addressing these problems.
Explain the nature of multiple-self models and how they address preference reversals.
Explain the contribution of prospect theory models to understanding intertemporal preferences.
Compare and contrast hyperbolic discounting and visceral factor models as approaches to explaining preference reversals.
Discuss the advantages and disadvantages of hyperbolic discounting.
Explain how the (b,) model of quasi-hyperbolic discounting can explain preference reversals, using a numerical example.
Explain the meaning of temptation and procrastination in terms of how they relate to inconsistent time preferences.
Describe the various confounding factors involved in the concept of time preference.
Explain what is meant by a violation of independence in intertemporal choice, giving an example. What might cause this violation?
Explain what is meant by ‘delay-speedup asymmetry’, and how it is related to prospect theory.
Explain what is meant by a negative discount rate; under what circumstances might people have a negative discount rate?
Explain what is meant by ‘front-end delay’, and the advantage of using this experimental method.
Describe the method of using matching tasks, discussing any problems that tend to arise in practice.
Describe the method of using choice tasks to elicit information, discussing any problems and how they may be overcome.
Explain the difference between stationary discounting and constant discounting.
Explain what is meant by consumption independence, giving an example.
Explain what is meant by a ‘target worker’, and why such workers behave in contrasting ways to the predictions of the standard model of labor supply.
Explain why default options are important, giving two examples.
Explain the factors that are relevant in trade-in pricing.
Explain why governments might want to use the opposite type of policy to disaggregated pricing, and instead aggregate prices or costs to the consumer.
Explain what is meant by disaggregated pricing; why would marketers use such a tactic?
Explain what is meant by ‘emotional accounting’, giving an example.
Why would people prefer to pay by credit card and pay 12% interest when they have a savings account with sufficient funds paying them only 3%?
Why are people more reluctant to replace a $20 theater ticket if they have lost it than if they have lost $20 cash? What principle of the standard model does this violate?
Explain the mental accounting rule ‘segregate small gains from large losses’, and give an example relating to marketing.
minutes to save $5 on a $15 calculator but not for a $125 dollar jacket. What principle of PT is relevant here?
Explain why people may drive for
Show, using a numerical example, how the TAX model accounts for risk-aversion.
Describe the fundamental difference between PT and configural weights theories.
Explain the nature and purpose of imprecision theory.
Explain the steps in the priority heuristic process.
Use a numerical example to explain the principles of cancellation and dominance.
Explain the difference between a descriptive and a normative theory. How do EUT and PT compare in these respects?
Give three reasons from behavioral economics why people tend to prefer travelling by car than by plane.
Why is the decision-weighting function important in PT?
Give an example of an experiment where neuroeconomics has been helpful in explaining people’s behavior.
Explain the ‘end-of-the-day effect’ in gambling in terms of PT.
Explain the endowment effect in terms of the experiment with pens and mugs. What principles of PT are relevant here?
Use two numerical examples to explain the difference between risk-aversion and risk-seeking.
How do EUT and PT differ in their views of risk-aversion and risk-seeking?
How does Pinker’s three-act tragedy relate to the NM and to PT?
John McEnroe has been quoted as saying ‘the older I get, the better I used to be’.Explain this is terms of PT.
Give two examples of how managers can reduce the effects of contagion.
Explain why contagion is relevant in supermarket shopping; give two examples of how the concept of contagion can affect people’s shopping habits.
Explain why people may be reluctant to ‘tempt fate’.
Give an example of a situation where projection bias can result in a bad decision.
Explain why people tend to avoid betting on numbers that have recently won in a lottery, but also may want to buy their tickets from a store where a big-winning ticket has recently been sold.
Explain what is meant by ‘the law of small numbers’.
Explain what is meant by base rate bias, giving an example.
Explain what is meant by the representativeness heuristic, giving an example.
Explain the ‘hard-easy’ phenomenon and why it occurs.
Explain the difference between overestimation and overplacement, and why this distinction is important.
When is hype not hype?
Explain what is meant by salience in the context of anomalies in the standard model.
Give an example of a decoy effect, and explain how it can be used in marketing.
Explain what is meant by the paradox of choice.
Explain what is meant by arbitrary coherence, giving an example.
Explain what is meant by a framing effect and give an example.
Why are wanting and liking different?
Explain the significance of the difference between decision utility and experienced utility.
Give an example showing the difference between preference and choice; what may account for this difference?
Explain what is meant by the ‘peak-end’ rule and its implications as an anomaly in the standard model.
Explain the term RPE, and its implications for utility theory.
Explain the neuroeconomic basis of loss-aversion.
Give an example of an experiment where neuroeconomics has been helpful in explaining people’s behavior.
Explain what is meant by neuroeconomics imposing constraints on economic theory, giving an example of how this might happen.
Explain the ‘behavioral sufficiency’ argument.
Explain what is meant by the term consilience, giving an example.
Explain what is meant by ‘reverse inference’ and why it is problematical in terms of analysis.
Explain what is meant by neuroeconomics and describe four issues that have been raised by its use.
Explain three issues that have been raised with the methods used in behavioral economics.
Describe the advantage and disadvantages of an experimental study compared with a field study.
Describe the differences between a within-subjects study and a between-subjects study, giving examples of each.
Explain the meaning of reductionism as it is used in the chapter, giving an example.
Explain why theories should not be evaluated on the basis of their assumptions.
Explain the difference between a descriptive and a normative theory.

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