Applied Module 2: Social Psychology and Personal Finance

Question 1

Loss Aversion

Answer 1

the tendency for a loss of a given magnitude to have more psychological impact than an equivalent gain

Question 2

Risk Aversion

Answer 2

the reluctance to pursue an uncertain option with an average payoff that equals or exceeds the payoff attainable by another, certain option; the opposite of risk seeking

Question 3

Risk Seeking

Answer 3

the tendency to forgo a guaranteed outcome in favor of a risky option; the opposite of risk aversion

Question 4

Sunk Cost Fallacy

Answer 4

a reluctance to “waste” money that leads people to continue with an endeavor, whether it serves their future interests or not, because they have already invested money, effort, or time in it

Question 5

Mental Accounting

Answer 5

the tendency to treat money differently depending on how it is acquired and the mental category to which it is attached