Which of the following statements best reflects how a behavioral economist views individual decision making?
A. Alex makes wrong decisions sometimes, but usually it is only when he has been given bad
information.
B. Kara carefully calculates and weighs the expected benefits and costs of every option
before making a decision.
C. Alicia may appear to care about others, but even her seemingly altruistic behaviors are
really about furthering her own interests.
D. Balin tries to make good, well-thought-out decisions, but his desire for utility in the present
means that he often gives in to costly temptations.
Answer: D
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Firms decide how much to spend on product development and marketing by
A) spending the same amount as they did in previous years. B) spending the historical average of 1/4 of total production cost. C) determining what it will take to eliminate excess capacity. D) balancing the cost and the benefit of product development and marketing. E) ensuring that the marginal cost of product development and marketing is less than or equal to the marginal cost of producing the good or service.
The theory of portfolio choice suggests that the most important factor affecting the demand for domestic and foreign assets is
A) the level of trade and capital flows. B) the expected return on these assets relative to one another. C) the liquidity of these assets relative to one another. D) the riskiness of these assets relative to one another.