4.1.2.3 Aspects of behavioural economic theory NOTES

What does traditional economics assume about decision-making?

• Decisions are influenced by social norms

• Decisions are based on rational thinking with perfect information

• Decisions are unpredictable

• Decisions are primarily emotional

Which of the following is a focus of behavioral economics?

• Focusing only on monetary outcomes

• Cognitive biases like overconfidence and loss aversion

• Assuming perfect market operations

• Ignoring psychological factors

What does 'bounded rationality' suggest about human decision-making?

• Humans face constraints like limited information and time

• Humans are capable of processing unlimited information

• Humans do not use heuristics in decision-making

• Humans always make optimal decisions

Which example illustrates 'bounded rationality' in real life?

• A job seeker waits indefinitely for a perfect job offer

• An investor analyzes all potential investment opportunities deeply

• A buyer exhaustively compares every car model available

• A shopper purchases familiar items due to routine

What does 'bounded self-control' refer to in behavioral economics?

• Always making rational decisions

• Never facing temptation

• The inability to control impulses and desires at times

• Complete control over impulses

Which is an example of a rule of thumb in decision-making?

• Invest only in what you know

• Ignore expert advice

• Always buy the cheapest product

• Measure twice, cut once

What does the anchoring bias refer to?

• Relying too heavily on the last piece of information received

• Always making decisions based on logical reasoning

• Ignoring initial information when making decisions

• Relying too heavily on the first piece of information received

How can social norms influence purchasing decisions?

• They encourage individualistic choices

• They reduce the influence of marketing

• They lead to decisions based on personal preference alone

• They can pressure individuals to conform to trends

What role does altruism play in economic decision-making?

• It leads to purely self-interested decisions

• It involves sacrificing personal interests for the benefit of others

• It is irrelevant in economic contexts

• It promotes unfair practices

Which scenario is an example of the impact of perceptions of fairness?

• Consumers always choosing the cheapest products

• A company choosing to pay a living wage

• Individuals never donating to charity

• A company paying below the minimum wage