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Say one morning you are considering weather to take a taxi cab or riding the train to work Both mediums would cost you about €4 but you have already paid in advance

Say one morning you are considering weather to take a taxi cab or riding the train to work. Both mediums would cost you about €4, but you have already paid in advance for the train (since you pay a flat fee at the beginning of the month). If the cab ride would take slightly less time than the train ride, and you are mostly concerned with the time it takes you to get to work, you should:  

A. take the train since you already paid for it

B. take the cab

C. be indifferent between either modes of transportation

D. find another way to get to work

2.The story in the text at the beginning of this chapter about playing tennis outside even though you paid for an inside court. This story illustrates which if the following?  

A. Psychologically, people often do not treat sunk cost as irrelevant to a decision

B. Rational choice analysis is what comes naturally to most people

C. People will make efficient decisions without knowing what they are doing

D. All of the above are implied by the tennis court story

3.According to the rational choice model which of this two events should be valued more rational consumers:

i. A gift of mug valued at €10

ii. Finding the mug you thought was lost, which cost you €10 to purchase.  

A. Both events should have the same value

B. Event A

C. Event B

D. There is really no way to rationally decide.

4.If you were to behave according to the rational choice model when confronted with a loss of €25 on the same day in which you receive an unexpected gift of €25 you would:  

A. value the loss of €25 more heavily than the gain of €25

B. discount the loss and value the gain so that you feel you have gained welfare

C. see the two events as exactly offsetting and thereby of no consequence in your overall welfare

D. value the gift of €25 more than the loss of €25

5.Kahneman and Tversky have found that:  

A. people tend to weigh each event separately

B. people tend to treat gains and losses symmetrically

C. people attach more importance to the gain than to the loss

D. people tend to act rationally

6.The Kahneman-Tversky value function is:  

A. a conventional utility function

B. much steeper in losses than in gains

C. much steeper in gains than in losses

D. not defined over changes in wealth

7.If Kahneman and Tversky are correct about "mental accounts", household budgeting:  

A. should help families cut back on spending

B. leads families to spend more than if they did not budget

C. should have no effect on spending

D. will encourage families to earn more money than they would if they did not budget

8.The Kahneman-Tversky value function shows that a gain of €100:  

A. is valued less than two gains of €50

B. would be offset in one's mind by a loss of less than €100

C. would be offset in one's mind by a loss of more than €100

D. would be offset by a gain of €100

9.The Kahneman-Tversky value function provides a rationale for:  

A. putting several Christmas gifts in one big box for your special friend

B. paying cash rather than using a credit card

C. requiring employees to take all their vacation days in two weeks rather than taking scattered days throughout the year

D. car dealers offering rebates rather than a price reduction on a car

10.If Kahneman and Tversky are correct, I should:  

A. buy individual stocks rather than put my money into a mutual fund

B. put my money in a mutual fund instead of individual stocks

C. be indifferent which type of investment I make

D. have opposite strategies depending on whether my investments will rise or fall

Feb 11 2020 View more View Less

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