EC 320 Exam 1 2025 Questions and
Answers
Decision Theories - ANSWER-"or theories of choice" are an effort to study how
individuals will pursue goods
How do we view goals and preferences? - ANSWER-We take them as given
Economics is an amoral science
Descriptive Theories - ANSWER-how people in fact make decisions
Normative Theories - ANSWER-how people should make decisions
What happens if people fail to act as they should? - ANSWER-A theory cannot be
both descriptively accurate and normatively correct
Standard Economic Theory - ANSWER-A theory of rational choice- how people
who are and act rational make decisions
Neoclassical Economics - ANSWER-Generally considers rational choice theory to
be both descriptively accurate and normatively correct
Deviations from rational choice theory are considered: - ANSWER-small,
unsystematic, and unpredictable
....COPYRIGHT ©️ 2025 ALL RIGHTS RESERVED...TRUSTED & VERIFIED 1
,those that consistently act irrational (whether business or consumer) are stripped
of wealth until they have no market impact
Behavioral Economics - ANSWER-Increase the predictive power of economics
theory by recognizing what the best available psychological evidence has to say
about how people in fact make decisions.
Believe that a single theory cannot be both descriptively and normatively correct
Behavioral vs Neoclassical - ANSWER-1. Both are study of decision-making in an
environment of scarce resources
2. Both concern themselves with how decisions affect the market and public policy
3. Behavioral Economists reject neoclassical idea that people are not predictably
and systematically irrational (people do not always behave as they should)
Origins of Behavioral Economics - ANSWER-- Behavioral Econ is one of the
newest recognized fields in economics
-Notable: Daniel Kahneman Nobel Peace Prize in 2002
-Dates back to Adam Smith and David Ricardo's theories of trade on mercantilism.
& Keynes's idea of "animal spirits" guiding decisions
....COPYRIGHT ©️ 2025 ALL RIGHTS RESERVED...TRUSTED & VERIFIED 2
, Early Economic Theory was built on a foundation of hedonic psychology: -
ANSWER-1. Individuals seek to max pleasure and min pain
2. Influenced by Betham, Mill, and Utilitarianism
3. Justified assumption by assuming people were introspective- an individual
knows what he or she wants and why
How did WWII trend in sciences affect Behavioral Econ? - ANSWER-Post WWII
trend in all sciences to study what can be observed and externally verified. -
Behavioralism (psychology), Verificationism (philosophy), Operationalism
(physics)
-Economics moved towards observable, preference-based approach to avoid the
fuxzziness of psychology
-Early economics that incorporated mathematics ignored preferences and
psychology entirely and focused on the choices of goods only. Preference-based
approach allowed the return of the idea of maximizing utility functions
-The goal was to remove an fuzzinesss about what goes on "in the head" and focus
on observable traits like preferences
Cognitive Revolution (1950s and 1960s) - ANSWER-Renewed focus on study of
things "in the head" including beliefs, desires, rules of thumbs, etc.
-Behavioral Econ was born out of an interest in how what goes on "in the head"
influences how we in fact make decisions
....COPYRIGHT ©️ 2025 ALL RIGHTS RESERVED...TRUSTED & VERIFIED 3
Answers
Decision Theories - ANSWER-"or theories of choice" are an effort to study how
individuals will pursue goods
How do we view goals and preferences? - ANSWER-We take them as given
Economics is an amoral science
Descriptive Theories - ANSWER-how people in fact make decisions
Normative Theories - ANSWER-how people should make decisions
What happens if people fail to act as they should? - ANSWER-A theory cannot be
both descriptively accurate and normatively correct
Standard Economic Theory - ANSWER-A theory of rational choice- how people
who are and act rational make decisions
Neoclassical Economics - ANSWER-Generally considers rational choice theory to
be both descriptively accurate and normatively correct
Deviations from rational choice theory are considered: - ANSWER-small,
unsystematic, and unpredictable
....COPYRIGHT ©️ 2025 ALL RIGHTS RESERVED...TRUSTED & VERIFIED 1
,those that consistently act irrational (whether business or consumer) are stripped
of wealth until they have no market impact
Behavioral Economics - ANSWER-Increase the predictive power of economics
theory by recognizing what the best available psychological evidence has to say
about how people in fact make decisions.
Believe that a single theory cannot be both descriptively and normatively correct
Behavioral vs Neoclassical - ANSWER-1. Both are study of decision-making in an
environment of scarce resources
2. Both concern themselves with how decisions affect the market and public policy
3. Behavioral Economists reject neoclassical idea that people are not predictably
and systematically irrational (people do not always behave as they should)
Origins of Behavioral Economics - ANSWER-- Behavioral Econ is one of the
newest recognized fields in economics
-Notable: Daniel Kahneman Nobel Peace Prize in 2002
-Dates back to Adam Smith and David Ricardo's theories of trade on mercantilism.
& Keynes's idea of "animal spirits" guiding decisions
....COPYRIGHT ©️ 2025 ALL RIGHTS RESERVED...TRUSTED & VERIFIED 2
, Early Economic Theory was built on a foundation of hedonic psychology: -
ANSWER-1. Individuals seek to max pleasure and min pain
2. Influenced by Betham, Mill, and Utilitarianism
3. Justified assumption by assuming people were introspective- an individual
knows what he or she wants and why
How did WWII trend in sciences affect Behavioral Econ? - ANSWER-Post WWII
trend in all sciences to study what can be observed and externally verified. -
Behavioralism (psychology), Verificationism (philosophy), Operationalism
(physics)
-Economics moved towards observable, preference-based approach to avoid the
fuxzziness of psychology
-Early economics that incorporated mathematics ignored preferences and
psychology entirely and focused on the choices of goods only. Preference-based
approach allowed the return of the idea of maximizing utility functions
-The goal was to remove an fuzzinesss about what goes on "in the head" and focus
on observable traits like preferences
Cognitive Revolution (1950s and 1960s) - ANSWER-Renewed focus on study of
things "in the head" including beliefs, desires, rules of thumbs, etc.
-Behavioral Econ was born out of an interest in how what goes on "in the head"
influences how we in fact make decisions
....COPYRIGHT ©️ 2025 ALL RIGHTS RESERVED...TRUSTED & VERIFIED 3
