Question

1. Roulette is a casino game in which players bet where a ball will land on a spinning wheel. Players can bet on specific numbers or color (red or black) on which the ball will land. On a recent trip to a Las Vegas casino, you notice that the ball has landed on a red number on the last seven spins at the roulette table. You proceed to bet $100 that a black number will be next because there have already been so many reds in a row. What concept would a behavioral economist use to explain this behavior?

difficulty in assessing probabilities

the hot-hand fallacy

inability to calculate the expected value for games of chance

the gambler’s fallacy

2. Suppose you are taking a quiz, and you notice that the answer is true for the first 5 questions. Which of the following statements is true?

using the gambler’s fallacy you would pick true

using the hot-hand fallacy you would pick false

using the gambler’s fallacy you would pick false

using preference reversal, you would pick true

3. Teachers who show movies in their course the day before their class evaluations tend to have extremely high ratings compared to teachers who give exams before evaluations, despite equivalent teacher behavior and quality on all other days. What concept would a behavioral economist use to explain this behavior?

framing

priming

status quo bias

inter-temporal timing

Answer 1

1. the gambler's fallacy; The gambler's fallacy explains the mistaken assumption that if something has occurred more often than a normal period of time, then the probability of it happening in the future is less. In the above case, we assume that just because black has appeared more frequently it has lesser chances of appearing in the future.

2. using preference reversal, you would pick true; The concept of preference reversal explains how the decision made is different from when the bundles are valued separately to the decision made when the bundles are valued jointly. In a quiz, the decision needs to be made while evaluating the questions separately instead of evaluating them jointly.

3. priming; priming is usually used to influence one's decisions by introducing a stimulus just before another task is introduced to make the person make a connection or relation between the two. In the case of class evaluations, students find it easier to better rate a teacher that shows a movie much more closer to the evaluation because they can relate these two events and give a positive response to the teacher.