Behavioral Economics

Your cousin Todd tells you that he made a budget in his personal finance class and used his values to decide how he wants to use his money. What does Todd mean by this?

• Todd reviewed his savings account balance to decide how to budget his money.

• Todd asked his friends how they thought he should budget his money.

• Todd identified what is important to him and used that knowledge to decide how to use his money

• Todd made his budget based on his favorite social media influencer's advice.

How do behavioral economists view people differently than traditional economists?

• Behavioral economists study high school graduates whereas traditional economists study college graduates.

• Behavioral economists have meetings with traditional economists in order to reach conclusions about people.

• Both types of economists view people the same.

• Behavioral economists view people as irrational beings whereas traditional economists view people as completely rational beings.

How might businesses use cognitive biases to their advantage?

• Businesses can exploit customers by placing cognitive bias in their advertising.

• Businesses cannot use cognitive bias to their advantage.

• Businesses can increase their prices to attract customers with low income.

• Businesses can stop all advertising.

Behavioral economics…

• Is a field of economics that studies people who make rational and objective decisions
• Compares the economies of different counties in the western hemispere.

• Tricks consumers into thinking they are getting a good deal on purchases.

• Combines economics and psychology to study why people behave the way they do in the real world

Cognitive bias is…

• Explains why shoppers search for bargains.

• An error in the way we think that can influence our decisions.
• Examines why people act irrationally when it comes to money.

• The value of your stock portfolio.

You go to a movie and it's terrible. There is no plot. The graphics look like they were created by amateurs. It's probably the worst movie you have ever seen but you refuse to leave before it's over because you paid for the ticket and cannot get a refund. This is an example of...

• Mental Accounting
• Fear of Missing Out (FOMO)
• The Sunk Cost Fallacy
• The Endowment Effect

Arnold owns a Pikachu card that he keeps in mint condition. Arnold feels confident that his card is worth $500. However, when Arnold sees a similar Pikachu card at the game store listed at $500 he tells his friend that he would never pay that much for that card. This is an example of....

• Overprecision bias

• Cognitive awareness

• Overestimation bias

• The Endowment Effect

Aaron has his heart set on buying a Real Team Oval Class skateboard. Aaron's grandmother offered to pay half for the skateboard, but she wants Aaron to buy the best skateboard available. Aaron shows his grandmother several positive reviews on the on Real Team skateboard, but he doesn't look at or show her the negative reviews. Aaron's tendency to search for, interpret, favor, and recall information that confirms his preexisting beliefs and values is an example of...

• Fear of Missing Out

• Confirmation Bias
• Biased Decision Making

• The Endowment Effect

Angelica, Clementine and Johnboy took a skiing trip to Vermont. They all took pictures and posted them to social media throughout the weekend, telling everyone how much fun they were having. Celeste got seriously bummed as she read the posts and viewed the pictures while staying home and doing chores. Celeste is suffering from...

• Fear of Missing Out
• The mopping blues

• Tik-Tok withdrawal

• Friendship avoidance

Mandy treats money differently depending on how she received it. Mandy's aunt gives here $20 a week and Mandy spends it without any thought. However, Mandy babysits on weekends and she is careful to budget and save that money. This practice of categorizing money and assets into separate mental accounts based on subjective criteria is known as...

• Foolish Accounting

• Gifts vs. work Accounting

• Practical Accounting

• Mental Accounting