The Psychology behind Irrational Decisions

According to rational economic theory, people make decisions by...

• ...following precise mathematical rules that ensure the optimal outcome.

• …randomly and without careful consideration of the odds at stake.

• …following their instinct.

• …weighing all possible options and then letting feelings decide.

The difficulty in considering the real value of a product once its price its known, is an example of:

• Conjunction fallacy

• Anchoring effect

• Loss aversion

• None of the above

What is a heuristic?

• An intuitive way to solve problems based on careful analysis

• An intuitive way to solve problems based on previous experience

• A rational problem-solving approach

• An irrational decision

According to loss aversion, people’s choices are biased on the fact that:

• Losing is always perceived as better than winning

• Winning is always perceived as worse than losing

• Winning $10 has a stronger positive psychological impact than losing $10

• Losing $10 has a stronger negative psychological impact than winning 10

Do heuristics always lead to a wrong choice?

• Yes, as they are based on intuition.

• Yes, as they are based on irrational decisions.

• No. Heuristics carry an adaptive value as they allow quick decisions even with limited information.

• No, as they always lead to the best possible choice.