Rational Choice and Behavioral Economics

Which of the following is not an assumption of rational consumer choice?

• Utility maximization

• Perfect information

• Rule of thumb

• Consumer rationality

The assumption of perfect information implies that:

• Consumers have limited cognitive ability to process data

• Consumers make choices based only on easily available evidence

• Consumers know all prices, qualities, and outcomes before making a decision

• Producers always restrict choices to ensure efficiency

A shopper always buys groceries from the same supermarket because “it’s usually cheaper” without checking other stores. This is an example of:

• Anchoring

• Availability bias

• Rule of thumb

• Bounded rationality

A company prices a luxury handbag at $10,000 next to a $1,200 model, making the cheaper one look “reasonable.” This illustrates:

• Rule of thumb

• Availability bias

• Anchoring and framing

• Mandated choice

Believing smoking is not risky after seeing older smokers alive is an example of:

• Anchoring

• Availability bias

• Default choice

• Imperfect information

Bounded rationality means:

• People are selfish only within limits

• Decision-making is limited by time, information, and cognitive ability.

• People always have full knowledge but ignore it

• Rationality is unlimited but sometimes ignored

Which behaviour best illustrates bounded self-control?

• Comparing all phone prices before buying

• Spending more than intended on online shopping

• Donating money to charity at the cost of personal welfare

• Believing an advert’s claim without verifying

Bounded selfishness challenges traditional economics because:

• It assumes people are completely selfish

• It recognizes that people sometimes act altruistically (selflessly), such as volunteering or donating

• It shows consumers lack rationality

• It ignores externalities in consumption

The assumption of utility maximization is limited by:

• Biases and bounded rationality

• Mandated choice

• Default choice systems

• Rational expectations

Imperfect information refers to:

• Consumers always having limited self-control

• The impossibility of having complete, perfect knowledge in decisions

• Decisions always being manipulated by framing

• Altruistic behaviour reducing efficiency