Cognitive Bias & Taxes Review

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What are pre-tax deductions and contributions?

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Contributions taken out of your paycheck BEFORE taxes are calculated on your income.

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What is the impact of living in a state without a state income tax?

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In some cases, people paid more taxes in a state without state income tax compared to a state that does have state income tax.

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What is Overconfidence in cognitive bias?

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A cognitive bias where an individual has an excessive belief in their own abilities, often leading to overestimating their chances of success.

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What is the Sunk Cost Fallacy?

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The tendency to continue an endeavor once an investment in money, effort, or time has been made, regardless of the current costs.

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What does FOMO (Fear of Missing Out) mean?

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A cognitive bias where individuals feel anxious about missing out on rewarding experiences that others are having.

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Define pre-tax contributions.

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Contributions that are deducted from your income before taxes are calculated.

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What is the Endowment Effect?

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A cognitive bias where people assign more value to things merely because they own them.

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Explain Risk Loss Aversion.

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The tendency to prefer avoiding losses over acquiring equivalent gains; it's better to not lose $5 than to find $5.

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What is Hedonic Adaptation?

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The observed tendency of humans to quickly return to a relatively stable level of happiness despite major positive or negative events.

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What is the Action Bias?

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The tendency to favor action over inaction, even when inaction may be the better choice.