Behavioral Economics and Decision Making

The video explores the concept of sunk costs, using examples like Jimmy's decision to watch a movie instead of playing football and the Concorde project. It highlights the sunk cost fallacy, where past investments influence current decisions irrationally. An experiment with theater tickets demonstrates this fallacy, showing that people who paid full price attended more plays. The video also discusses psychological reasons for irrationality, such as loss aversion and the desire not to appear wasteful. It encourages viewers to reflect on their own sunk costs and consider changes.

Why does Jimmy throw away the bad fish?

• To reduce costs

• To increase his catch

• To save time

• To maintain customer satisfaction

What mistake does Jimmy make regarding his movie ticket?

• He sells the ticket to a friend

• He lets the sunk cost of the ticket influence his decision

• He forgets to attend the movie

• He buys a ticket for the wrong movie

What is the sunk cost fallacy?

• The tendency to continue an endeavor once an investment has been made

• The tendency to sell off investments quickly

• The tendency to ignore past investments

• The tendency to avoid new investments

What is the Concorde project an example of?

• A case of the sunk cost fallacy

• An economic benefit

• A successful aviation project

• A technological breakthrough

What did the British and French governments do with the Concorde project despite knowing it had no economic benefit?

• They continued funding it

• They shut it down

• They sold it to another country

• They made it a public project

What did the theater ticket experiment by Hal Arkes and Catherine Blumer demonstrate?

• Children under 6 behave irrationally

• People prefer discounted tickets

• People who pay more attend more events

• Discounts lead to higher attendance

Which of the following is NOT a psychological reason for irrationality according to behavioral economists?

• Desire to avoid waste

• Ensuring commitment

• Desire to appear wasteful

• Loss aversion

What is loss aversion?

• Avoiding losses more than acquiring gains

• Preferring to gain rather than lose

• Taking risks to avoid losses

• Ignoring sunk costs

Why might someone finish their meal even if they are full?

• To avoid hunger later

• To avoid appearing wasteful

• To save money

• To enjoy the taste

What is a common reason people buy expensive gym memberships?

• To access better facilities

• To meet new people

• To show off their wealth

• To ensure they actually go and work out