NGPF Review of Behavioral Economics

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

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

• Most people are satisfied with their current annual salaries

• Increasing your annual salary is guaranteed to increase your long-term happiness

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

• Most people need to earn at least $200,000 a year in order to be happy

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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

Janet has a snowboard she doesn’t use anymore, but loss aversion has made her question whether or not she should sell it. Her friend Jack suggests she use the Overnight Test. Which of the following scenarios demonstrates the strategy she’s using?

• Imagine the snowboard was replaced with cash, then make a plan about how to spend the cash.

• Imagine the snowboard was replaced with cash, then figure out how to keep the cash and get her snowboard back.

• Imagine the snowboard was replaced with cash, then decide if she's happier with the cash or the snowboard.

• Imagine the snowboard was replaced with cash, then figure out how to use the cash to get her snowboard back.

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?

• Fear of missing out

• 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

All of the following are types of overconfidence bias EXCEPT...

• Overplacement

• Overestimation

• Overprecision

• Overgeneralization

Unlike traditional economics, behavioral economics believes that

• People 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

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

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

• Opportunity costs

• Sunk costs

• Relevant costs

• Avoidale costs