Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Behavioral Economics של > Final Exam > Flashcards

Final Exam Flashcards

1
Q

Describe Classical Economics

A

Many of the forefathers of economics (i.e. Adam Smith) acknowledged the important role that psychological principles play in human behavior.

It departed from psychology because they wanted a more exact science and also because psychology was just in its early stages (late 19th Century)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What happened during the era of Neoclassical Economics

A

There was a departure from the young science of psychology in the turn of the 20th century

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Describe Neo-Classical Economics

A
  • Took place in the turn of the 20th Century, departure from the young science of psychology. Descriptive mathematical models replaced psychology in economic theories.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Describe 4 components describing people from a standard economics

A

People are…

  1. Perfectly ration
  2. Selfish (what we gain out of each situation)
  3. Utility maximizes
  4. Have limited cognitive capacity
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Define Heuristics

A

Simple Rules of Thumb
Heuristics are influenced by irrelevant info
Decisions are biased (50% of managerial decisions fail, Errors do not equal biases)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Relying on heuristics and biases lead us to…

A

To make mistakes, because heuristics can be influenced by irrelevant info i.e. decisions are biased. (Biases also cannot be unseen and are likely to be repeated)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Describe the Heuristics and Biases Approach (Amos Tversky, Daniel Kahneman)

A

It states our world is too complex (too much info, not enough processing powers), people employe heuristics to evaluate info. These rules help us make sense of our complex environment, fast and effortlessly which can lead to why we employ stereotypes.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

How is Behavioral Economics different than Standard Economics?

A

While its similar, behavioral economics is w/ out the assumption that people are rational.
When making a policy, Ariely says we should consider human behavior.
It’s descriptive, not prescriptive. Descriptive models remove the assumption of rationality, is experimental, and tries determine what factors determine human behavior.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Describe the: (Classical Economics) Expected Utility Theory (EUT) and its 4 axioms

A
  • In decisions under risk (uncertain outcomes), each alternative has a subjective utility. (Subjective evaluation of the alternatives)
  • Normative Model of Rational Choice
  • Descriptive Model of Economic Behavior
  • Assumption: Rational people would want to obey the axioms of the model, and most people actually do (most of the time)
  • 4 Axioms:
    1. Completeness (people have well-defined preferences and can always decide btwn any two alternatives)
    2. Transitivity: Preferences are consistent
    3. Continuity: Adding a third option could (give a certain p) undermine its appeal
    4. Independence: Two options mixed w/ a 3rd, one maintain the initial preferences
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Describe Prospect Theory (Kahneman and Tversky)

A
  • Holds that prospects (outcomes) are considered in terms of gains and losses, relative to a reference point (the current states). We don’t evaluate outcomes objectively, rather according to our current state.
  • it’s an alternative to EUT (which is logical based)
  • Prospect theory came to present an empirical approach to devision making, focuses on value over utility. Deals w/ decision weight rather than probability.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are the two phases of the Prospect Theory?

A

Editing & Evaluation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Describe the Editing + Evaluation Phases of the Prospect Theory

A

We make a preliminary analysis of the possible prospects to simplify things to help us make a decision
A. Coding (perceiving the prospects by combining probabilities associated with identical outcomes)
B. Combination: Simplifying the prospect by combining probabilities associated w/ identical outcomes
C. Segregation - separating risky vs. safe
D. Simplification - rounding outcomes and probabilities
E. Dominance - searching for dominant alternatives

Evaluation Phases selecting the prospect w/ the (subjective) highest value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Name the 6 behavioral regularities.

A
  1. Certainty Effect
  2. Reflection Effect
  3. Isolation Effect
  4. Framing Effect
  5. Overweight Effect
  6. Loss Aversion
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Describe the Reflection Effect

A

Tendency for a mirror image preference btwn positive and negative prospects.
The reflection of prospects around 0 reverses the preferences.

Example problem:
Alternative A: $3000 for sure (80% of people selected this), vs. Alternative B: $4000 for 80%, otherwise.

Mirror image of that situation:
Alternative C: -$3,000 for sure vs. Alternative D -$4,000, 80% ($0 otherwise - 92% of couples chose this).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Describe the Endowment Effect (Richard Thaler)

A
  • Ownership increases utility
  • People value goods more once we own them
  • Selling a mug for twice its worth because people value the item and the loss
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are the three basic Heuristics?

A
  1. Representativeness
  2. Availability
  3. Anchoring & Adjustment
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Describe Representativeness (Heuristics)

A

A. Used when making judgements about probability of events
B. Work under the rule the more of an object X is similar to class Y, the more likely is it that the object belongs to the class
C. The problem - similarity doesn’t always predict probability (i.e. toss a coin 6 times and get heads 5 times)
These all lead us to systematic mistakes.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Describe availability (heuristics)

A

A. Used when making judgements about frequency of events
B. When things are more frequent, we think about them more.
I.e. plane crash, people become scared so they end up driving more, bringing down plane fares and spiking gas prices.פ

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Describe Anchoring + Adjustments (Heuristics)

A

This iPad should cost $999, but it’s going to be selling it for $499 instead - Initial value anchor and adjusts
- used when making estimations
Problem: initial value are not always relevant, adjustments are not sufficient.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What are three biases in organizations?

A
  1. Overconfidence
  2. Affect Heuristic
  3. Inattentional Blindness
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Describe overconfidence and the three types.

A

Unrealistic evaluation of one’s own abilities.

  1. Overestimation of odds and chances
  2. Better than avg. - we are better than we actually are
  3. Over-evaluation of knowledge/abilities
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Describe Affect Heuristics

A
  1. Feelings & emotions effect our decisions (Positive + negative responses)
    B. Automatic
    C. Not always conscious
    D. Example: Would you choose to endorse, an airport safety protocol that is expected to save 150 lives, or a protocol that will save a high percentage of a population of 150 people under risk? || the higher the percentage the more likely people will want to support that because the % evaluation gives a reference point to comparison, which in turn makes us feel better
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Describe Inattentional Blindness

A

A. Inability to see things that are just in front of us
B. Problem of attention, not perception
C. Not related to abilities (memory, cognition, expertise)
D. Radiologists only seeing what they are looking for, now what else is in the X-ray.
E. Why can’t we see things? Answer: Expectations, we see what we expect to see, the availability heuristic, cognitive load

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Describe some example of Financial Motivation

A

Money, Status, Promotion

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What are some examples of motivators the social market?

A

Reciprocity, pleasure, togetherness

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Give an example of a social vs. economic markets

A

One is more likely to help a friend if they ask for freely, because that’s a social matter, but if they offer you a small amount of money, you are less likely because it switches to market norms.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Describe the Faming Effect

A

Overweighting small probabilities - tendency to subjectively over-evaluate small probabilities. The lower the probability is, the higher we will weigh it subjectively.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Describe Sunk-Cost

A
  • Investing in failed projects
    • Example: a lottery after completing the job vs. a lottery before completing his job. (more people are willing to take the chance at the beginning of the day, we have a tendency to consider in our previous decisions for the present/future)
      Sunk cost in real life? - Approving a new loan for a client who can’t make payments.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

How do you improve a sunk-cost situation

A

De-Biasing:

- Taking the decision out of the hands of the initial decision maker (i.e. replacing a CEO after a failed venture) 
- Acknowledging the fact that people can make its mistakes
- Encouraging failures - Highlighting the absurdity
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

What are the 3 types of effect on our decision quality?

A

Prior Action have no influences (optimism bias): optimistic expectations about the future
Prior Actions have an effect, when they shouldn’t (self-signaling): past behaviors signal to us who we are and what we care about, thus past behaviors guide our present and future behavior.
Non- Actions : inaction inertia (ripple effect of non-action) which describe actions we did not take, influence our decisions In the future.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Describe Cognitive Dissonance

A

When beliefs/values and actions contradict, there is a psychological tension to reduce tension, we must change either values or behavior.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Name the phases of the rational model

A 
Defining a problem 
Setting choice criteria and weights
Defining alternatives
Evaluating alternatives (based on criteria)
Making a decision
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

Describe Bounded Rationality (Herbert Simon) - 1955

A

Humans are limited in their cognitive abilities (memory, perception, processing)
Under these limitations, people are rational:
- simplified thinking rules
- satisficing

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

Name the phases of the bounded rationality model and what’s the different w/ the rational model

A
  1. Defining a problem
  2. Setting a criteria
  3. Defining ONE alternative
  4. Evaluating alternative
  5. Making a decision

It’s limiting the possibilities of which to choose from in order to make the best possible decision.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

Describe the Certainty Effect

A

A tendency to overweight outcomes that are considered certain relative to probable outcomes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

Name some criticisms of Prospect Theory

A
  • May lead to some absurd predictions i.e (A: $100 for sure =B: $100, 50% otherwise $101 - prospect theory would suggest A when we know it should be B)
  • Does not represent real life problems (IRL, people are rational)
  • Too specific and narrow (1-800)
37
Q

Define Loss Aversion

A

Losses loom larger than gains, the psychological impact of losses is twice as much as gains.
- people prefer to avoid loss

38
Q

Name Two Empirical Supports for Loss Aversion

A
  • Endowment Effect

- Status Quo Bias

39
Q

According to the Dan Ariely social experiment, what did we learn in terms of financial motivations vs. social ones?

A

In his experiment, the group that was asked to help as a “social” favor often showed more effort than people who were asked to do something in exchange for 5 cents or for 5 dollars.

Summary: One is more likely to help a friend if they ask for free - because it’s a social matter.

40
Q

When money is introduced people switch from a social market to a ______ market.

A

Answer: economic

41
Q

The more efficient something is in the economic market, the ___ efficient it is in the social market.

A

Answer: less

42
Q

What are some characteristics regarding people who are primed to an economic market?

A
  • They ask for help less
  • Offer less help
  • Makes them more competitive
43
Q

True or False: Economic norms violate social norms and hurt social interactions (even if money is socially accepted)

A

True

44
Q

Regarding work perks, i.e. Credit Card Points, vacation days etc. what was considered more or less fair?

A

When it comes to the distribution of money or points, it is considered less fair but time and small gifts is perceived as fair.

45
Q

Which is easier moving from social to economic or vice versa?

A

Moving from social to economic.

The other way is much harder.

46
Q

Define Fungible resources

A

Resources that can be replaced by another identical item, mutually interchangeable i.e. money.

47
Q

Describe Attribute Framing

A
  • Only works when one doesn’t already have experience w/ these products, when there’s a basis the frames don’t really have much an effect
  • Gain Frame: People are more risk averse
  • Loss Frame: people are greater risk takers
48
Q

True or false: According to risk tendency we are more motivated to avoid losses than to obtain gains because they have a bigger impact the classic framing effect (Tversky & Kahneman)

A

True

49
Q

Describe the difference between status quo and default biases

A

Status quo:
usually involves mundane decisions
a preference for the existing choice
Decisions are made by others or in the past

Defaults:
Involves complex decisions
A preference not to make a decision
Decisions are pre-determined by policy makers

50
Q

What does the description - experience gap refer to?

A

Gap refers to the difference between description and experience-based decisions.

Experience Based: Risk seeking for gains, risk aversion for losses// Underweighting small probabilities, overweighting large probabilities.

Description Based: Risk aversion for gains, risk seeking for losses. Overweighting small probabilities and underweighting large probabilities.

51
Q

Why does the description-experience gap exist?

A
  • Small samples (insensitivity to sample size, using too few instances, overconfidence)
  • Biased evaluation
  • Conditional sampling
  • Recency effect (overweighting recent events)
52
Q

What is numerical display used to highlight, the background or the foreground?

A

Background (i.e. the amount of people under risk aka risk tolerance)
- Best used for focusing on specific data points

53
Q

What does the graphical display best highlight the background or the foreground and what is it best used for?

A

The foreground (i.e. the amount of people to get hurt aka risk avoidance)

  • It’s better used for the summary of data
  • people will remember more later, because they remember better through graphical rather than through numerical representation
  • shows development trends
  • compare between variables
  • prospects and predictions
  • big datasets
  • highlights risks
54
Q

Describe Outcome Bias

A

Biased evaluation of the decision process
Focuses on outcome
Neglects relevant factors
Decisions resulting in negative outcomes are evaluated as wrong
Decisions with positive outcomes are considered as better excisions.
Decision makes who made decisions resulting in positive outcomes are perceived as more competent.
Decisions against alternatives resulting in negative outcomes are still considered good decisions. (The “what if” and “glad we didn’t make that choice”

55
Q

Describe Impact Bias

A

Many decisions we make are based on affective forecasts (how we think we will feel about them in the future) which leads us to overestimate the intensity and duration of our emotional reactions. Especially true for negative events, we tend to underestimate our ability to cope w/ something, but people adjust to things pretty well and rapidly.

56
Q

Describe the process of mental accounting

A

People divide their assets into separate non-transferable accounts and this division affects how people feel about that money and the utility of that money and consequently the way people label resources effects how they will use them.

57
Q

Are you more likely to see a show if you lost a ticket ($100 value) or if you lost a $100 bill?

A

Answer: lost the $100 bill because they perceived the cost of the lost ticket to be twice the amount that it was originally worth.

58
Q

What are some consequences of Mental Accounting?

A
  • Hedonic (i.e. pleasurable framing)
  • segregate gains
  • integrate losses
  • combining a small loss w/ a large gains
  • separating a small gain from a big loss
59
Q

Describe the process of mental budgeting

A

We set budgets before consumption opportunities arise:
Overestimation and underestimation

These burgers aren’t transferrable between our accounts, no adding and no re-allocating.

60
Q

Define Acquisition Utility

A

The value consumers derive from obtaining a good (minus the price to be paid)

61
Q

Define Transaction Utility

A

The value consumers get from the deal itself, depending on the comparison of actual price w/ a reference price.

62
Q

Finding $100 in your pocket and spending it on hedonic products, because it feels like “free money” is an example of…

A

Emotional accounting

63
Q

The source of money affect how much and what the money is spent on is an example of what “effect”?

A

The laundry effect. Based on the source of the money dictates how much we will spend and what we will spend it on. I.e. survey participation money from a cigarette company

64
Q

The pain of paying depends on :

A
  • Saliency of Paying (when you can see what you’re paying for)
  • Temporal Distance (distance between paying and actual consumption)
65
Q

What is the origin behind why we feel pain when we spend money?

A 
The “moral” tax of feeling guilt and regrets
Opportunity cost (people tend to increase their personal benefit, and when in conflict most us tend to exploit others and be dishonest)
66
Q

If your goal is to control spending, name some things you can do to help?

A

Use moe salient payment methods (i.e. cash and specifically not credit cards or tokens)

67
Q

If your goal is to increase enjoyment (on a vacation, on a meal etc) how would you pay?

A

Pay in advance (all you can eat meals, pre-paid to avoid the pain of paying)

68
Q

Define Motivation

A

Willingness to exert effort and other personal resources:

  • at high level of intensity
  • towards a certain direction
  • with persistence
69
Q

Define Productivity

A

Employee’s effectiveness. The amount of goods a worker produces in a given amount of time

70
Q

What are two types of incentives organizations can use?

A 
Intrinsic incentives (increases the internal motivation to perform an action for the enjoyment and satisfaction inherent in the action itself)
Extrinsic incentives (increases the external motivation to perform an action in order to obtain a positive outcome or avoid a negative outcome)
71
Q

What is considered a problem with extrinsic motivation?

A

External incentives increase extrinsic motivations, but may decrease intrinsic motivation.

72
Q

Define Self Determination Theory

A

External incentives are perceived as manipulative and controlling thus people start working just for the money

73
Q

How does one link performance and payment?

A
  1. Step I - Set a Goal: What is the desired outcome (what is the threshold for getting a reward)?
  2. Step II - An accurate measure of performance
  3. Step III - Incentivize employees who reach the threshold
74
Q

What effects intrinsic motivation

A

Autonomy

Degree of challenge

75
Q

Describe sorting effect

A

It’s a natural selection process where good performers are attracted to places which pay based on performance so ultimately they get paid well and stay longer at their job

76
Q

Describe some main findings of the goal-setting theory

A

Specific goals are better than general goals

Challenging goals are more motivating than easy goals - a linear connection between goal difficulty and performances

77
Q

Describe some rules of thumb for goal setting

A
  • goals shouldn’t be too narrow
  • employee commitment is essential
  • timely
  • specific
  • challenging but realistic
  • frame goals as gains, not as losses
78
Q

True or False. Bonus plan programs in general and performance-based incentives in specific work but have a limited effect.

A

True.

79
Q

Define Pro-social motivation

A

The desire to benefit other people or society as a whole with no personal cost

80
Q

Why is pro-social behavior important? (Specifically in the context of organizations)

A
  • Orgs and employees are not selfish and self-centered organisms who care only about personal profit. Social forces play a major rule in org behavior.
  • a necessary step in creating meaning and work satisfaction
  • facilitate positive org outcomes (creativity, perseverance)
  • > doesn’t have to be altruistic in order to have pro-social motivations
  • > contradicts classic economics
81
Q

Motivations in general operate on which three hierarchical levels?

A
  • Global (pro-social) motivation: relatively stable dispositional orientations towards particular goals/actions across time and situations
  • Contextual Motivation: Towards a specific domain or class of behavior.
  • Situational Motivation: Towards a particular behavior in a specific moment in time
82
Q

Name 4 goals in pro social motivations

A
  1. Altruistic Goals (protect or promote the well-being of others without the intention of personal benefit)
  2. Egoistic Goals (Increase positive effect, reduce negative effect, boost self-esteem, provide external reward)
  3. Principalistic Goals: Advance moral values or ethical causes
  4. Collectivist Goals: Defend or strengthen one’s bond with a group
83
Q

What’s the main purpose for pro social motivation?

A

Giving to others makes us happy

84
Q

Name some steps to promote pro-social motivations

A
  1. Job Design (through structural characteristics of the work that effect employee’s relationships w/ others increase pro-social motivation)
    - Task Significance (extent to which a job provides opportunities to have impact on others
    - Contact with beneficiaries (enables employees to identify and empathize w/ beneficiaries and strengthens effective commitment)
  2. Collectivist Norms and Rewards (collectivism emphasizes the importance of contributing to the group rather than personal goals, when norms encourage “other interest”, pro-social motivation increases since the org signals to its employees it’s legit and acceptable s
  3. Transformation Leadership motivates by linking their work to their core values
85
Q

Are pro-social behavior and intrinsic motivation basically the same thing?

A

The jury is still out.

86
Q

Name some underlying mechanisms (that promote lying)

A
  1. Self Maintenance Theory : A tension arises from the inconsistency btwn the desire to maintain a positive self-image and the desire to increase personal gain.
  2. Justifications: we justify immoral actions
  3. Moral Licensing: cognitive bias, which enables individuals to behave immorally without threatening their self-image of being a moral person.
  4. White lies: Altruistic, Pareto, Selfish, Spiteful, Gray lie
87
Q

True or False. Employees are less tolerant toward abusive supervisors who demonstrated prior ethics behavior.

A

False. Employees were more tolerant, more forgiving and less emotional

88
Q

Describe some characteristics of group decision making scenarios

A
  • members participation is unequal
  • more dominant members tilt the scales
  • status predicts dominance (regardless of skill level)
  • managers speak more
  • men speak more
  • the person at the head of the table speaks the most
  • people are more polite and considerate and avoid controversy

Behavioral Economics של (1 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions