#27 Behavior Economics Monday 2.19.24

What is the main focus of Behavioral Economics?

• The mathematical models that predict economic outcomes

• The psychological, social, and emotional factors that influence decision-making

• The historical development of economic theories

• The laws of supply and demand in market economies

Who discussed psychological factors in decision-making in 1759?

• Karl Marx

• Milton Friedman

• Adam Smith

• John Maynard Keynes

What concept accepts that there are limits on information, time, and abilities in decision-making?

• Absolute advantage

• Perfect competition

• Bounded rationality

• Rational expectations

What can cause the law of demand to not hold true according to the text?

• A decrease in the price of a substitute good

• Government intervention in the market

• An increase in consumer income

• A suspiciously low price leading to perceptions of poor quality

What does the ultimatum game demonstrate about human behavior?

• People prefer to make decisions that benefit others

• People are always motivated by self-interest

• People's decisions can be influenced by perceptions of fairness

• People always make rational decisions

What is an example of a cognitive bias mentioned in the text?

• Anchoring bias

• Hindsight bias

• Framing effect

• Confirmation bias

How do high-end retailers use psychological pricing differently?

• By setting prices at whole dollars to signal higher quality

• By using odd pricing strategies

• By frequently changing prices

• By offering significant discounts

What is 'nudge theory'?

• A theory that suggests direct intervention is the best way to change behavior

• A theory that suggests people can be encouraged to make certain decisions without restricting their choices

• A theory that supports the use of penalties to change behavior

• A theory that emphasizes the importance of economic incentives

What does 'loss aversion' describe?

• The preference for avoiding losses over acquiring equivalent gains

• The inclination to take risks to avoid losses

• The habit of ignoring potential losses when making decisions

• The tendency to undervalue potential gains

What did the study involving a bonus for employees demonstrate?

• That bonuses have no effect on employee performance

• That control groups perform better than those promised bonuses

• That giving a bonus at the beginning and threatening to take it back is most effective

• That bonuses at the end of the year are the most effective