Behavioral Economics Test Review

Jose wants to go see a movie that all of his friends are raving about. Which cognitive bias is most likely affecting his decision?

• Confirmation Bias

• FOMO (Fear of Missing Out)

• Boredom

• Loss Aversion

Which of the following best describes what 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.

You are going to have a garage sale to earn some cash. You can't decide if you should sell your old Nintendo 64 and games or keep them. You decide to use the overnight test. Which best describes the steps of the overnight test?

• Put the N64 in a box in your garage for the garage sale. In the morning, decide if you want to keep it there or bring it back in the house.

• Sell the N64 to your sibling, then decide in the morning if you want to keep the cash or buy it back.

• Imagine that while you are sleeping, someone replaces your N64 with cash. In the morning, would you be happier keeping the cash or the N64?

• Since you aren't sure, sleep on it and decide the morning of the garage sale.

What are the steps of the overnight test?

• Imagine someone has replaced the object with cash overnight.

• Imagine waking up with the cash.

• Decide whether you feel happier with the cash.

• If you imagine you would feel happier with the cash, sell the object in question.

Over 70% of people believe they are above average drivers. This is an example of ​ (a)   .

• overconfidence bias
• confirmation bias
• the endowment effect
• FOMO

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 ​ (a)  

Scenario 2: You find a rare sports card worth $500 in your parents' attic. Rather than ​ (b)   it, you choose to put it in a case and display it in your room.

This is an example of ​ (c)  

• expensive.
• sell
• the endowment effect
• Overconfidence bias
• Sunk cost

Based on the belief that most people make logical, rational decisions with their money.

• Traditional Economics

• Behavioral Economics

• Personal Economics

• Cognitive Bias.

Based on the belief that because people are easily influenced by emotions and biases, they are more likely to make unwise and irrational decisions with their money.

• Traditional Economics

• Behavioral Economics

• Personal Economics

• Cognitive Bias

Sebastian began day trading stocks at the beginning of the summer. After a month, he made a profit of $200. Due to his ​ (a)   term success and his belief that he is a ​ (b)   skilled trader, Sebastian puts his entire savings into the market. This is an example of ​ (c)   bias.

• short
• highly
• overconfidence
• confirmation
• overestimation

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...

• overconfidence

• sunk cost

• endowment effect

• loss aversion