Aplia HW Question - On Behavioral Economics?

Question

Behavioral economists believe that people do not always act the way the traditional economic framework suggests they should. Which of the following examples illustrate this?

I. Some people treat $100 they earn differently from $100 they win in a random drawing.

II. Some people value their own possessions more highly than things they don't have, even if the dollar value is the same (the "endowment effect").

III. Some people would be willing to pay money to lower the incomes of others.

IV. Some people would be willing to make a large sacrifice in order to help a loved one.

A. I and IV only

B. II, III, and IV only

C. I, II, and III only

D. I, II, III, and IV

I have an answer to this (either C or D), but I'm not so sure what they're looking for. The book mentions first 3, but not the 4th. However, I think D can be an answer because IV is about behavior that isn't defined by the law of marginal utility.

Answer 1

It's C.  IV is completely consistent with the traditional economic framework, because people's utility often depend on the utility of others.  (In a sense, it's not really a "sacrifice," but I think the question is thinking of "You give up a ticket to the football game so your wife can go to the ballet." It's a sacrifice in the sense that you don't get to go to the game, but on net you are happier because your wife is happy.)