Behavioral Finance

Which of the following scenarios BEST demonstrates FOMO (Fear of Missing Out)?

• Megan takes a baking class after seeing a sign for the class at her favorite bakery
• David goes on a vacation to Europe and posts about it on social media every day
• Angela sees an advertisement for a pair of shoes and decides to buy them
• José wants to go see a movie that all of his friends have seen and are raving about

After learning about hedonic adaptation, Tamara wants to spend her money more wisely. Which of the following might help her do so?

• Purchasing a dress after seeing an ad on social media
• Buying a new laptop even though her current one still works well
• Donating money to a charity that supports a cause she cares about
• Getting a new phone accessory for her phone case

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

• A rational decision that is based on research and facts
• The belief that a person should change their opinions when new facts arise
• 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

Which of the following actions is the BEST way to counteract loss aversion when making a decision?

• Dwelling on the potential loss you may experience for several days
• Making the choice that takes on the most risk possible
• Reframing the decision to focus on the potential gains instead of the potential losses
• Polling a bunch of your friends and family to see what they would decide

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…

• Overconfidence Bias
• The Fear of Missing Out (FOMO)
• Confirmation Bias
• The Endowment Effect

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?

• The Fear of Missing Out (FOMO)
• Overconfidence
• Endowment effect
• Confirmation bias

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...

• Endowment effect
• Loss aversion
• Sunk cost
• Overconfidence

Which of the following is the LEAST likely to influence a person’s financial decisions?

• What their values are
• What their family’s needs are
• What their budget is
• What their friends want

Imani attends a town hall meeting where a tax increase is proposed to help pay for a new bridge. After the meeting, she reads Facebook comments that complain about the already high taxes in her town, which is a view that she agrees with. To avoid confirmation bias, Imani should…

• Avoid social media since it will influence her decision
• Seek out comments that support the tax increase and the bridge project to provide an alternative viewpoint
• Allow others to make the decision because she is too biased
• Join a Facebook group that organizes citizens that are opposed to the tax increase

Unlike traditional economics, behavioral economics believes that…

• People behave in a rational way when making economic decisions
• People do not always behave in a rational way when making economic decisions
• There is no way to predict how people will make economic decisions
• People will always update their viewpoints based on new information