MENTAL ACCOUNTING
Mental accounting mainly shows that:
A. People maximise utility
B. Money is always fungible
C. People treat money differently based on labels
D. People always save rationally
C. People treat money differently based on labels
According to Expected Utility Theory, how should people feel about winning $50 + $25 vs $75?
A. Happier with two wins
B. Happier with one win
C. Indifferent
D. Prefer smaller amount
C. Indifferent
A consumer feels happy paying ₹800 for a product expected to cost ₹1000. This happiness comes from:
A. Acquisition utility
B. Transaction utility
C. Loss aversion
D. Brand loyalty
B. Transaction utility
What is the historical equity premium in the United States?
A. 1%
B. 3%
C. Approximately 6%
D. 15%
C. Approximately 6%
Why do employers prefer layoffs over nominal wage cuts during downturns?
A. Layoffs are cheaper
B. To avoid psychological pain of nominal losses
C. Reduce administrative burden
D. Economic theory requires it
B. To avoid psychological pain of nominal losses
Which of the following best illustrates a violation of fungibility?
A. Saving in a diversified retirement fund
B. Treating a tax refund as “fun money” but wages as savings
C. Comparing prices across websites
D. Spending more with cards than cash
B. Treating a tax refund as “fun money” but wages as savings
Separating small gains from large losses is known as:
A. Framing effect
B. Endowment effect
C. Silver lining principle
D. Certainty effect
C. Silver lining principle
Why does the traditional “benefit minus cost” model fail to explain real behavior?
A. Consumers are irrational
B. Consumers dislike gains
C. Consumers strongly dislike losses
D. Consumers ignore prices
C. Consumers strongly dislike losses
Which behavior best illustrates the house money effect?
A. Increasing bets after losses
B. Selling stocks after gains
C. Taking higher risks using money won earlier
D. Preferring flat-rate pricing
C. Taking higher risks using money won earlier
Which policy change is most likely to double enrollment in savings schemes?
A. Increasing taxes
B. More bond funds
C. Opt-out automatic enrollment
D. Presenting savings as rebates
C. Opt-out automatic enrollment
Why does the “dividend rule” (spend dividends, not principal) exist?
A. Dividends are tax-free
B. Selling shares has transaction costs
C. Dividends are mentally categorized as income
D. Principal is riskier
C. Dividends are mentally categorized as income
Hedonic editing mainly refers to:
A. External presentation of choices
B. Internal mental processing of gains and losses
C. Accounting rules
D. Long-term wealth maximisation
B. Internal mental processing of gains and losses
A consumer attends a concert despite being very ill because the ticket is non-refundable. This shows:
A. Rational consumption smoothing
B. Mental depreciation
C. Editing future utility into losses
D. Sunk cost fallacy
D. Sunk cost fallacy
Myopic loss aversion arises due to the interaction of:
A. Overconfidence and probability weighting
B. Narrow framing and loss aversion
C. Diminishing sensitivity and sunk costs
D. Mental depreciation and reference dependence
B. Narrow framing and loss aversion
Why might governments issue several small tax rebates instead of one large lump sum?
A. Encourage saving
B. Diversification heuristic
C. Smaller amounts feel like petty cash and are spent
D. Appear neutral
C. Smaller amounts feel like petty cash and are spent