Scenarios
Will really likes the android phone his dad has, but chooses to buy an iPhone because his friends all have one. This is an example of...
Herd mentality
An error in the way we think that can influence our decisions
Cognitive bias
The tendency to conform to the behaviors and beliefs of the people around you
Herd mentality
Which of the following scenarios BEST demonstrates FOMO (Fear of Missing Out)?
4. José wants to go see a movie that all of his friends have seen and are raving about
How might the endowment effect cause someone to make an irrational decision?
The endowment effect causes someone to place more value on an item that they already own. As a result, someone may make a decision that doesn’t serve their best interest if they choose something they already have even when faced with a better option.
What kind of accent does DreamWorks’ Shrek have?
Scottish -- Mike Meyers originally used his own voice. He later pitched the idea of using the Scottish accent. His role was re-recorded at a cost of $5 million.
Michael observed he felt the pain of losing a $20 bill more than he felt the joy of finding it on the sidewalk the week before. This is a result of...
Loss aversion
Investments of time, effort, and money that cannot be recovered are...
Sunk costs
The tendency to regard losses as considerably more important than gains of comparable magnitude
Loss aversion
After learning about hedonic adaptation, Tamara wants to spend her money more wisely. Which of the following might help her do so?
3. Donating money to a charity that supports a cause she cares about
Explain why it can be difficult to ignore sunk costs when making a decision.
Sunk costs are resources you have already spent or invested (e.g. time, money, etc.). When making a decision, it can be tempting to consider these “spent” resources because they were of some value. However, because you cannot get these resources back, these sunk costs should not be factored into a decision.
Which blood type is a universal donor?
O Negative
Sebastian began day trading stocks at the beginning of the summer. After a month, he made a profit of $200. Due to his short term success and his belief that he is a highly skilled trader, Sebastian puts his entire savings into the market. This is an example of… which bias?
Overconfidence bias
The tendency to put more value on things you already own
Endowment effect
The tendency for people to adopt certain behaviors, styles, or attitudes simply because others are doing so. More specifically, it is a cognitive bias by which public opinion or behaviors can alter due to particular actions and beliefs rallying amongst the public.
Bandwagon effect
Which of the following actions is the BEST way to counteract loss aversion when making a decision?
3. Reframing the decision to focus on the potential gains instead of the potential losses
Regarding hedonic adaptation, how does a positive event initially impact our emotional state? What happens to our emotional state after some time passes?
A positive event initially makes us feel high levels of happiness. After some time passes we tend to return to our normal, or baseline, level of happiness.
What is the Grinch’s dog’s name?
Max
You are doing research on a new electric car that you are interested in buying. You only visit the car company’s website and an online message board of electric car enthusiasts to do your research. This strategy may lead to … which bias?
Confirmation bias
The tendency to feel anxiety/fear that an exciting or interesting event may currently be happening elsewhere, often aroused by posts seen on a social media website
FOMO (Fear of missing out)
The subfield of economics that applies psychological insights into human behavior and to explain economic decision making
Behavioral economics
Imani attends a town hall meeting where a tax increase is proposed to help pay for a new bridge. After the meeting, she reads Facebook comments that complain about the already high taxes in her town, which is a view that she agrees with. To avoid confirmation bias, Imani should…
2. Seek out comments that support the tax increase and the bridge project to provide an alternative viewpoint
It is suggested that you not only challenge yourself, but also get someone else to challenge you. How do you think involving another person could help you overcome confirmation bias?
Since confirmation bias involves confirming what we already believe, it can help to get other people involved who might have different beliefs than our own to provide us with disconfirming evidence.
How many properties are on a Monopoly board?
28
Alisha is having a garage sale, where she is selling her childhood toys at a higher price than they are available new. This is an example of...
Endowment effect
The tendency to return to a baseline level of happiness regardless of whether you go through a positive or negative experience or event
Hedonic adaptation
The tendency to make decisions about a current situation based on what resources you have already invested in the situation
Sunk cost fallacy
Which of the following is an example of how someone’s PHYSICAL values can influence their financial decisions?
3. Jessie gets a massage every month as a form of self-care
Consider the following statistics:
Explain how overconfidence bias makes these statistics unrealistic.
Realistically, there is probably a smaller percentage of people who are above average in these categories. Especially in the case of professional investors, where ZERO percent of them believe themselves to be below average, which is statistically impossible
The legislature of which state has passed a bill to declare denim as the official fabric of the state?
California