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Behavioural economics > Decisional anomalies > Flashcards

Decisional anomalies Flashcards

1
Q

According to full rationality, decision-makers have unlimited computational power, willpower and they are selfish

A

True

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2
Q

Substantial rationality is a reduced form of perfect rationality so that an agent is able to control and evaluate the whole set of alternatives. They have unlimited computational power in determining the order of preferences and in maximizing utility

A

True

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3
Q

Procedural rationality is a reduced form of perfect rationality so that an agent is able to control and evaluate the whole set of alternatives. They have unlimited computational power in determining the order of preferences and in maximizing utility

A

False

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4
Q

Procedural rationality and bounded rationality are synonym

A

True

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5
Q

The axiom of ??? under SEM is that given two alternatives A and B, it must be that A > (=prefered) B or B > A or A = (=similar to) B

A

Completeness

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6
Q

The axiom of ??? under SEM is that given three alternatives A, B and C, if A > B and B > C, then A > C

A

transitivity

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7
Q

The axiom of ??? under SEM is that any alternative is at least as good as itself

A

Reflexivity

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8
Q

The axiom of ???? under SEM is that given two different alternatives A and B, if A is revealed directly/indirectly preferred to B, then B cannot be revealed directly/indirectly preferred to A

A

Revealed preferences

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9
Q

The axiom of ??? under SEM is that given A+x >B+x, then A > B

A

Cancellation

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10
Q

The axiom of ??? under SEM is that given two alternatives A and B, if A is better than B in at least one state and at least as good as B in all other states, then A is dominant over B

A

Dominance

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11
Q

The axiom of ??? under SEM is that there is invariance with respect to endowment, irrelevant alternatives, and elicitation procedure

A

Invariance

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12
Q

Imagine this sequence of colour

Black 100%
Grey 99%
Grey 98%
Grey 97%
Grey 96%
Grey 95%
…
Grey 1%
White 100%

We concatenate this sequence with the similarity operator (tilde), so that Black 100% is similar to White 100%.

This is an example of the failure of which axioms?

A

Transitivity

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13
Q

The endowment effect is an example of reference dependency, which is an anomaly under SEM

A

True

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14
Q

The anchoring effect is an example of reference dependency, which is an anomaly under SEM

A

True

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15
Q

Context effect
loss aversion
endowment effect
anchoring
diminishing sensitivity

are examples of a kind of anomaly, which one?

A

Reference dependence

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16
Q

Diminishing sensitivity means that the presence of other alternatives in the choice set affects the choice

A

False, this is the context effect.

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17
Q

Diminishing sensitivity means that losses have a higher impact than gains

A

False, this is the loss aversion

18
Q

Diminishing sensitivity means that the impact of a change decreases with distance from a reference point

A

True

19
Q

Often real estate agents use the context effect (asymmetric dominance)

A

True pg 12

20
Q

Imagine you have a set of three cameras

A —> high quality, high price
B —> low quality, low price

People choose between A and B

After the decision, option A+ is reveal

A + —-> even higher quality, higher price

Under SEM, it is ok to switch from A to A+

A

True

21
Q

Imagine you have a set of three cameras

A —> high quality, high price
B —> low quality, low price

People choose between A and B

After the decision, option A+ is reveal

A + —-> even higher quality, higher price

Under SEM, it is ok to switch from B to A

A

False

22
Q

Imagine you have a set of three cameras

A —> high quality, high price
B —> low quality, low price

People choose between A and B

After the decision, option A+ is reveal

A + —-> even higher quality, higher price

Some people decide to switch from B to A, which violates SEM conditions.

This is an example of which anomaly?

A

Context effect/Reference dependency/ Asymmetric Dominance

23
Q

We have two options for an orange juice

A is high in price but low in added sugar
B is lower in price but high in added sugar

A2 is revealed and it’s similar to A

People are more oriented towards B

This is an example of which anomaly?

A

Reference dependency/Context effect/ SIMILARITY EFFECT

24
Q

Imagine a shop that sells two goods, A and B.

Choosing between them is difficult.

Then we add C

After that some people switch from A to B

This is an example of what effect?

A

Extremeness aversion

25
Q

The two cameras experiment by Kahneman and Tversky is an example that shows what effect?

A

Extremeness aversion

26
Q

People give more value to possessed goods instead of others’ goods.

This is the…

A

Endowment effect

27
Q

An income raise from 1000 to 1100 is higher satisfying that an income raise from 2000 to 2100. This is an example of …

A

Diminishing sensitivity

28
Q

Imagine you sell two goods, A and B.

A > B

A is sold for 15 cents
B for one cent

The company decides to lower both prices of one cent.

Some people switch from A to B.

This is the failure of ….

A

Cancellation axiom

29
Q

Imagine two bets

X = 4, P = 0.88
X = 40, P = 0.11

The majority of people choose the former, but if you ask them to set a price for each of them, they say that the latter should be more expensive.

This is the …

A

Failure of procedural invariance/
preference reversal phenomenon

28

30
Q

Equivalent descriptions lead to different choices by altering the presentation without changing the information. This is the…

A

Framing effect

29

31
Q

People prefer a treatment that has an 80% chance of success to a treatment that has a 20% of success. This is due to the …

A

Framing effect

32
Q

Given a positive frame, people choose the risky option

A

False, 32

33
Q

Given a negative frame, people choose the sure option

A

False, 32

34
Q

Opt-in and Opt-out are particular kind of framing effect

A

True, 33

35
Q

If the policy-maker opts for an opt-out policy for organ donation, more organs are donated. This is due to the…

A

Framing effect/
default option
33

36
Q

Failure of invariance and and dominance has been observed

A

True

37
Q

Imagine you sell a gift package A of one good.

You ask a person to formulate another gift package B of two goods: cash and the former good so that the two gift packages are equivalent.

Some people will prefer cash while some people will prefer the good.

Then you tell people to decide what package they do prefer.

We should expect a 50-50 distribution, in contrast, we observe that people tend to choose the gift that exacerbates the good they prefer

This is a failure of SEM axioms and assumptions

A

True

38
Q

People focus on positive aspects when awarding, while they focus on negative aspects when denying

A

True, 42

39
Q

When it is hard to rationalize their choice, people avoid searching for additional options

A

False, 43

40
Q

When the choice is not easy, people prefer to wait

A

True, 44

Behavioural economics (6 decks)

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