Behavioral Economics

Cognitive bias 2

100

1. Which of the following scenarios BEST demonstrates FOMO (Fear of Missing Out)?
2. Megan takes a baking class after seeing a sign for the class at her favorite bakery
3. David goes on a vacation to Europe and posts about it on social media every day
4. Angela sees an advertisement for a pair of shoes and decides to buy them
5. José wants to go see a movie that all of his friends have seen and are raving about

• José wants to go see a movie that all of his friends have seen and are raving about

200

7. 
   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...

1. Endowment effect
2. Loss aversion
3. Sunk cost
4. Overconfidence

• Loss aversion

300

9. All of the following are types of overconfidence bias EXCEPT...

1. Overplacement
2. Overestimation
3. Overprecision
4. Overgeneralization

• Overgeneralization

400

14. 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 …

1. Herd Mentality
2. The Endowment Effect
3. Confirmation Bias
4. Loss Aversion

• Confirmation Bias

500

18. Due to hedonic adaptation, what do you expect would happen to Anu's level of happiness after buying a new jacket?

1. It would initially increase, then return to a baseline level
2. It would remain at a baseline level, then increase over time
3. It would initially decrease, then return to a baseline level
4. It would remain at a baseline level, then decrease over time

• It would initially increase, then return to a baseline level

Social Media and Marketing

100

8. How has social media marketing evolved over the past few decades?

1. Modern marketing urges you to make financial decisions that align with your goals
2. Modern marketing utilizes extremely detailed user data to create personalized ads for each user
3. Modern marketing makes it easy to distinguish advertising from other types of content
4. Modern marketing creates a less seamless shopping experience for consumers

• Modern marketing utilizes extremely detailed user data to create personalized ads for each user

200

2. Research done on peoples' salaries and happiness levels has shown that...

1. Most people are satisfied with their current annual salaries
2. Increasing your annual salary is guaranteed to increase your long-term happiness
3. Humans typically become accustomed to how much they earn and eventually want more
4. Most people need to earn at least $200,000 a year in order to be happy

• Humans typically become accustomed to how much they earn and eventually want more

300

12. A website tells you, "Only one left!" while shopping online. Which loss aversion strategy is this website using?

1. Coupons
2. Scarcity and urgency
3. Buy now, get free shipping
4. Free trials and samples

• Scarcity and urgency

400

17. 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…

1. avoid social media since it will influence her decision
2. seek out comments that support the tax increase and the bridge project to provide an alternative viewpoint
3. allow others to make the decision because she is too biased
4. join a Facebook group that organizes citizens that are opposed to the tax increase

• seek out comments that support the tax increase and the bridge project to provide an alternative viewpoint

500

25. When using social media, it's important to remember that...

1. Social media ads are trying to get you to buy stuff you NEED, not want
2. Marketers have your best interests in mind and want you to be financially responsible
3. People typically only post about the best parts of their lives on social media
4. The more likes a post has, the more trustworthy and accurate the information is likely to be

• People typically only post about the best parts of their lives on social media

Cognitive Bias 1

100

5. 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

1. Overconfidence Bias
2. The Fear of Missing Out (FOMO)
3. Confirmation Bias
4. The Endowment Effect

• Overconfidence Bias

200

3. Which of the following best describes what a cognitive bias is?

1. A rational decision that is based on research and facts
2. The belief that a person should change their opinions when new facts arise
3. the belief that we are right until someone provides information that contradicts our belief
4. An error in the way we think that can influence our decisions

• An error in the way we think that can influence our decisions

300

6. Imagine two scenarios:

• Scenario 1: You see a rare sports card being sold for $500 in a store but choose not to buy it because you think it’s too expensive.
• Scenario 2: You find a rare sports card worth $500 in your parents’ attic. Rather than sell it, you choose to put it in a case and display it in your room.

In scenario 1, you are putting more value on your $500 than the card. In scenario 2, you are putting more value on your card than the $500. This is an example of what?

5. Fear of missing out
6. Overconfidence
7. Endowment effect
8. Confirmation bias

• Endowment effect

400

16. Herd mentality may explain why...

1. Davona chose to skip dinner with her friends and watched a movie at home instead
2. Mason went to see a movie with his friends even though he didn't like the genre
3. Ginnifer decided to keep her current phone even though her closest friends bought the new version
4. Akshay bought a shirt he liked from an unpopular brand

• Mason went to see a movie with his friends even though he didn't like the genre

500

20. People who experience FOMO may...

1. save a percentage of their paycheck each month
2. donate money to a cause they care about
3. go into debt to keep up with everyone else
4. create and stick to a monthly budget

• go into debt to keep up with everyone else

Vocabulary and application

100

11. Investments of time, effort, and money that cannot be recovered are...

1. Opportunity costs
2. Sunk costs
3. Relevant costs
4. Avoidable costs

• Sunk costs

200

10. Unlike traditional economics, behavioral economics believes that  

1. People behave in a rational way when making economic decisions
2. People do not always behave in a rational way when making economic decisions
3. There is no way to predict how people will make economic decisions
4. People will always update their viewpoints based on new information

• People do not always behave in a rational way when making economic decisions

300

13. You spend an entire Saturday going to car dealerships in search of a used car. You spend hours looking at cars and even test drive a few, but there are none you like that fit your budget. What is the sunk cost you should ignore when deciding whether or not to buy a car that day?

1. The cost of the car
2. The cost of the warranty
3. The time it will take to drive home
4. The time you spent looking for cars that day

• The time you spent looking for cars that day

400

19. You buy a stock that has a price of $50 per share. A week later the stock's price drops to $25 per share (it's lost half its value).  If you are affected by loss aversion you would be likely to…

1. Buy more shares
2. Sell the shares
3. Do nothing
4. Look for other stocks to buy

• Sell the shares

500

21. Your friend gives you an item. A day later, they offer to trade you another item of similar value. According to the endowment effect, most people would keep the item…  

1. They received first
2. They were offered second
3. They could sell for the most
4. They think looks the best

• They received first

Random!

100

23. Each of the following statements is an example of confirmation bias EXCEPT...

1. Interpreting information to support your existing beliefs
2. Seeking information that challenges your beliefs
3. Only remembering details that uphold your beliefs
4. Ignoring information that challenges your beliefs

• Seeking information that challenges your beliefs

200

4. Janet has a snowboard she doesn’t use anymore, but loss aversion has made her question whether or not she should sell it. Her friend Jack suggests she use the Overnight Test. Which of the following scenarios demonstrates the strategy she’s using?

1. Imagine the snowboard was replaced with cash, then make a plan about how to spend the cash.
2. Imagine the snowboard was replaced with cash, then figure out how to keep the cash and get her snowboard back.
3. Imagine the snowboard was replaced with cash, then decide if she's happier with the cash or the snowboard.
4. Imagine the snowboard was replaced with cash, then figure out how to use the cash to get her snowboard back.

• Imagine the snowboard was replaced with cash, then decide if she's happier with the cash or the snowboard.

300

15. 
    An "experiential purchase" is...

1. Something that commemorates an experience, like a souvenir
2. Something that creates or enhances an experience or connects us with other people
3. Something that was made by hand rather than at a factory
4. Something that has a lot of monetary value

• Something that creates or enhances an experience or connects us with other people

400

22. People are compelled to buy MORE stuff for all of the following reasons EXCEPT...

1. The media portrays that the more stuff we have, the happier we will be
2. We tend to want more compared to those around us
3. Scientific research proves that the more items we own, the happier we tend to be
4. Once the initial novelty of a recent purchase wears off, we look to buy the next new thing

• Scientific research proves that the more items we own, the happier we tend to be

500

24. All of the following explain why humans might "follow the herd" EXCEPT...

1. People prefer having opinions that are very different from those of others
2. It can be uncomfortable standing out from the crowd
3. Humans evolved to stick with the herd to survive
4. Fighting social pressure can be difficult to do

• People prefer having opinions that are very different from those of others