PPE 203/PSYC 265 EXAM 2 – BOUNDED WILLPOWER You have until 4:25. Each item gives the number of points it is worth. 60 points total.
1) Matching: Next to each item below, place the letter of the concept that best matches and/or explains it. Letters could be used more than once or not at all. 3 points each, 27 total A. Present bias D. Temptation Goods ___ Using the 1/n rule ___ Maintaining simultaneous savings and credit card debt ___ Treating money like it isn’t fungible ___ Constant difference effects ___ Choosing more variety when picking all at once for the future than when picking one each period ___ This one could only apply to sophisticates ___ Allocating more money to stocks when your retirement savings program offers more stock funds ___ Believing that being stranded without water would be worse right after working out than right before ___ Could explain why charities market the cost of helping as “pennies a day” B. Naïve diversification E. Mental accounting C. Diversification Heuristic (choice over time) F. Hot/Cold Empathy gaps
2) Tonya likes potato chips. At time 0 (now), she can buy a small (1-serving) or large (2-serving) bag of potato chips. If she buys the small bag, she will eat one serving at time 1. If she buys the large bag, she can eat two servings at time 1, or eat one and save one for later. The large bag is cheaper per unit, so she prefers eating from the large bag in time 1. In time 2, however, she will have some negative utility based on how much she eats: Time 0 Time 1utility 2.5 3 6 Time 2 utility -2 -2 -6
Small bag Large bag Eat one serving Eat two servings
What would Tonya’s long run utility end up being if she was each of the following types (δ = 1 for all): 2 points each, 6 total Time Consistent ____ Naïf with β = .6 ____ Sophisticate with β = .6 ____
3) Briefly state the difference between impatience and present bias. In doing so, state...