Unit 1 Behavioral Economics Review

Which of the following best describes what a cognitive bias is?

• A rational decision that is based on research and facts

• The belief that we are right until someone provides information that contradicts our belief

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

• The belief that a person should change their opinions when new facts arise

Unlike traditional economics, behavioral economics believes that…

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

• People will always update their viewpoints based on new information

• There is no way to predict how people will make economic decisions

• People behave in a rational way when making economic decisions

People who experience FOMO may...

• Save a percentage of their paycheck each month

• Go into debt to keep up with everyone else

• Donate money to a cause they care about

• Create and stick to a monthly budget

When using social media, it's important to remember that...

• Marketers have your best interests in mind and want you to be financially responsible

• The more likes a post has, the more trustworthy and accurate the information is likely to be

• People typically only post about the best parts of their lives on social media

• Social media ads are trying to get you to buy stuff you NEED, not want

The pain of losing a $20 bill is felt more than the joy of finding it.

This is a result of...

• Loss aversion

• Overconfidence

• Sunk cost

• Endowment effect

Overconfidence bias may lead the majority of Americans to think that they are…

• Below average drivers

• Extremely poor drivers 

• Average drivers 

• Above average drivers

All of the following explain why humans might "follow the herd" EXCEPT...

• People prefer having opinions that are very different from those of others

• It can be uncomfortable standing out from the crowd

• Humans evolved to stick with the herd to survive

• Fighting social pressure can be difficult to do

Your friend gives you an item. A day later, they offer to trade you another item of similar value. According to the endowment effect, most people would keep the item… 

• They were offered second

• They could sell for the most

• They received first

• They think looks the best

Herd mentality may explain why...

• Ben bought a shirt he liked from an unpopular brand

• Davona chose to skip dinner with her friends and watched a movie at home instead

• Ginnifer decided to keep her current phone even though her closest friends bought the new version

• Mason went to see a movie with his friends even though he didn't like the genre

Investments of time, effort, and money that cannot be recovered are... 

• Opportunity costs

• Avoidable costs

• Sunk costs

• Relevant costs