Behavioral Economics Vocabulary

Overnight Test

• A method to increase spending by encouraging impulse purchases.

• A strategy used to combat loss aversion by imagining that overnight something you own has been replaced with cash, then determining whether you would prefer to keep the cash or buy the item back.

• A psychological test to measure emotional attachment to possessions.

• A financial strategy to maximize investment returns.

Behavioral Economics

• A type of economics that applies psychological insights into how human behavior affects economic decision making.

• A branch of economics that focuses solely on market trends and data analysis.

• An economic theory that disregards human emotions and focuses on rational decision-making.

• A field of study that examines the impact of government policies on economic growth.

economics

• the study of how to cook food

• the social science that deals with the production of goods, how and why people buy goods, and what investment decisions people make

• the art of painting and sculpture

• the science of physical health and fitness

Loss Aversion

• The tendency to regard gains as more important than losses of comparable magnitude.

• The tendency to regard losses as considerably more important than gains of comparable magnitude.

• The tendency to ignore both gains and losses when making decisions.

• The tendency to prefer certain outcomes over probabilistic ones.

Overconfidence Bias

• The tendency to underestimate one's abilities.

• The tendency people have to be more confident in their own abilities.

• The tendency to overestimate the accuracy of one's knowledge.

• The tendency to rely on intuition rather than analysis.

Hedonic Adaptation

• The ability to maintain a high level of happiness regardless of circumstances.

• The tendency to return to a baseline level of happiness regardless of whether you go through a positive or negative experience or event.

• The process of becoming less sensitive to pleasure over time.

• The phenomenon of experiencing increased happiness after a positive event.

Confirmation Bias

• The tendency to search for information that supports our preconceptions and to ignore or distort contradictory evidence

• The ability to objectively evaluate all evidence regardless of personal beliefs

• The inclination to accept all information as equally valid

• The practice of seeking out diverse perspectives to form a balanced opinion

FOMO (Fear of Missing Out)

What does FOMO refer to?

• The fear of being alone during an event.

• The tendency to feel anxiety that an exciting event may be happening elsewhere, often due to social media.

• The excitement of attending multiple events at once.

• The fear of missing out on financial opportunities.

Herd Mentality

• The tendency to conform to the behaviors and beliefs of the people around you.

• A psychological condition where individuals act independently of social influence.

• A phenomenon where people make decisions based solely on personal experience.

• The ability to think critically and independently in a group setting.

Cognitive Bias

• A conscious decision-making strategy that leads to optimal outcomes.

• A subconscious error in thinking that leads to making a decision that doesn't make sense given the circumstances.

• A method of logical reasoning that guarantees correct conclusions.

• A psychological phenomenon that enhances memory retention.