behavioural economics

Question 1

Framing effects:

Answer 1

Changes to choice environment can affect outcomes

Question 2

Anchoring Effects

Answer 2

Individuals tendency to rely heavily on prior pieces of (possibly irrelevant) information when making decisions

Question 3

sunk cost fallacy

Answer 3

Once someone has bought something, the amount paid is “sunk,” or no longer recoverable. So future behaviour should not be influenced by sunk costs.

It is common for a person selling a house to want to “get back” the money used to buy and improve the house (i.e., recover the sunk cost) even though they understand that buyers don’t care about their past expenses.

Question 4

Loss Aversion

Answer 4

Losses loom larger than gains

Question 4

Commitment device

Answer 4

a choice that an individual makes in the present which restricts his own set of choices in the future

Question 5

Social norms:

Answer 5

The behavioural expectations or rules within a group of people.

Question 6

Issues with Time and Self-control:

Answer 6

People discount distant future more heavily than immediate future.