Unit 1: Behavioral Economics

Naresh started a new job and is having some of his paycheck deposited directly into a savings account. which of the following values best explains why Naresh does this on a regular basis?

• Inner
• Social
• Physical
• Financial

You overhear your friend Ginny say, "I made a budget for myself in my personal finance class and used my values to decide how I want to use my money." What does Ginny mean by this?

• Ginny used the value of her bank account balance to decide how to use her money
• Ginny asked her friends and family for advice to decide how to use her money
• Ginny identified what is important to her and used that knowledge to decide how to use her money
• Ginny followed recommendations she saw on social media to decide how to use her money

What are social values, as they pertain to money?

• How you, personally, care and think about finances
• How your family, friends, and community members impact your feelings about money
• How companies and advertisement make you feel about money
• How banks and other financial institutions treat you and your money

Behavioral economics…

• Is a field of economics that studies people who make rational and objective decisions
• Analyzes how different economies around the world behave over time
• Tracks and examines stock market trends over a certain period of time
• Combines economics and psychology to study why people behave the way they do in the real world

Cognitive Bias is...

• a. An error in the way we think that can influence our decisions
• b. The desire to seek out information that confirms our existing beliefs
• c. The belief that our abilities are better than they actually are
• d. The concept of placing more value on an item when we own it

You go to a restaurant and order a big meal. Even though you’re full, you keep eating because it was expensive. This is an example of...

• a. Mental Accounting
• b. The Sunk Cost Fallacy
• c. Fear of Missing Out
• d. The Endowment Effect

Which of the following is TRUE about cognitive biases?

• It is easy to recognize when cognitive biases are influencing our own decisions
• There is rarely anything you can do to combat a cognitive bias’ influence
• There are only a handful of cognitive biases that exist
• Awareness is often the first step to overcoming the influence of a cognitive bias

Andrew wants to buy a specific model of a new car. He conducts research and finds many resources that highlight the benefits of that car model. Which cognitive bias might be influencing Andrew’s decision making?

• Confirmation Bias
• Hedonic Adaptation
• The Sunk Cost Fallacy
• Overconfidence

Mina wants to start using an investment app that all of her friends are raving about. She hasn’t done any research on the app, but she trusts her friends’ judgment. At home, Mina’s mom points out that Mina is being influenced by FOMO and herd mentality. All of the following are things Mina can do to overcome these cognitive biases EXCEPT…

• Take time to reflect and identify why she is so eager to use the app
• Watch a positive video about the app, download the app, and start using it that day
• Ask people outside her friend group for their opinions and perspectives
• Seek out reviews that talk about the disadvantages of using the app

How do behavioral economists view people differently than traditional economists?

• Behavioral economists believe people always make rational decisions based on self-interest.
• Behavioral economists consider people as consistently making decisions that maximize economic outcomes.
• Behavioral economists acknowledge that people make predictable mistakes.
• Behavioral economists think people are solely driven by external factors alone.