Question 1

Which of the following best describes the difference between the neoclassical (n/c) model and behavioural economics (BE)?

Accepted Answer

The n/c model assumes consumers are perfectly rational, while BE studies how consumers actually make choices, often drawing on psychology.

Question 2

Herbert Simon introduced the concept of 'bounded rationality.' Which of the following is NOT a component of bounded rationality as described in behavioural economics?

Accepted Answer

Bounded market competition

Question 3

Consider the following scenario: You are offered a coin bet—heads you win R14, tails you lose R10. According to standard neoclassical theory, should you accept the bet? What behavioural economics concept explains why many people refuse?

Accepted Answer

You should accept; loss aversion explains refusal.

Question 4

Which experiment best illustrates the 'endowment effect'?

Accepted Answer

Participants given coffee mugs value them more highly than those who are asked to buy them.

Question 5

In the disease dilemma (Tversky & Kahneman, 1981), what phenomenon is demonstrated when people choose differently depending on whether outcomes are framed as gains or losses?

Accepted Answer

Framing effects

Question 6

Suppose a consumer discounts future utility using exponential discounting. Which formula represents the present value of utility over three periods?

Accepted Answer

$u(c_1) + \delta u(c_2) + \delta^2 u(c_3)$

Question 7

Which behavioural economics concept explains why people may insure their cellphones even when the expected value of insurance is negative?

Accepted Answer

Risk aversion

Question 8

A student spends R400 on concert tickets but faces bad weather on the day of the event. According to behavioural economics, which bias might lead the student to attend despite the unpleasant conditions?

Accepted Answer

Sunk cost fallacy

Question 9

Which of the following is an example of the 'availability heuristic'?

Accepted Answer

Estimating the frequency of airplane accidents based on recent news reports.

Question 10

In the context of time inconsistency, which discounting formula is associated with hyperbolic discounting?

Accepted Answer

$\frac{1}{1+kt}$

Question 11

Which real-world policy application is most directly inspired by behavioural economics insights?

Accepted Answer

Making pension plans default to opt-out rather than opt-in.

Question 12

In the 'jam sampling experiment,' what paradoxical result was observed?

Accepted Answer

More choices led to fewer purchases.

Question 13

Which of the following best illustrates 'mental accounting'?

Accepted Answer

Treating a tax refund as spending money rather than savings.

Question 14

In the dictator game, what outcome is most commonly observed in experiments?

Accepted Answer

A 50-50 split of the money.

Question 15

Which concept explains why people may reject unfair offers in the ultimatum game, even at a cost to themselves?

Accepted Answer

Social preferences and fairness concerns

Question 16

Which of the following is NOT a criticism of behavioural economics mentioned in the study materials?

Accepted Answer

Behavioural economics ignores psychological insights.

Question 17

Which formula represents the marginal rate of substitution between consumption in periods 1 and 2 under exponential discounting?

Accepted Answer

$MRS_{1,2} = \delta \frac{MU(c_2)}{MU(c_1)}$

Question 18

Which of the following is a real-world example of a 'commitment device' as discussed in behavioural economics?

Accepted Answer

Joining a savings club that penalizes early withdrawal.

Question 19

Which behavioural economics concept is most relevant when people overestimate their own abilities, leading to excessive trading in financial markets?

Accepted Answer

Overconfidence bias

Introduction to Behavioural Economics: Microeconomics Study Notes

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