1.0 Behavior 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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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

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