Personal Finance - Midterm Review

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Which scenario BEST demonstrates FOMO (Fear of Missing Out)?

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José wants to go see a movie that all of his friends have seen and are raving about.

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Research done on peoples' salaries and happiness levels has shown that...

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Humans typically become accustomed to how much they earn and eventually want more

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What is a cognitive bias?

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An error in the way we think that can influence our decisions

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Janet's snowboard and the Overnight Test: Imagine the snowboard was replaced with cash, then...

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decide if she's happier with the cash or the snowboard.

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Sebastian began day trading stocks at the beginning of the summer. After a month, he made a profit of $200. Due to his short term success and his belief that he is a highly skilled trader, Sebastian puts his entire savings into the market. This is an example of

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Overconfidence Bias

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Imagine two scenarios:  Scenario 1: You see a rare sports card being sold for $500 in a store but choose not to buy it because you think it’s too expensive.  Scenario 2: You find a rare sports card worth $500 in your parents’ attic. Rather than sell it, you choose to put it in a case and display it in your room.  In scenario 1, you are putting more value on your $500 than the card. In scenario 2, you are putting more value on your card than the $500. This is an example of what?

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Endowment effect

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Michael observed he felt the pain of losing a $20 bill more than he felt the joy of finding it on the sidewalk the week before. This is a result of...

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Loss aversion

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How has social media marketing evolved over the past few decades?

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Modern marketing utilizes extremely detailed user data to create personalized ads for each user.

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Types of overconfidence bias: Overplacement, Overestimation, Overprecision, Overgeneralization. Which is NOT a type?

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Overgeneralization

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Unlike traditional economics, behavioral economics believes that

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People do not always behave in a rational way when making economic decisions