Module 7 - Behavioural Economics

Question 1

When we evaluate whether or not we like something, we tend to implicitly ask ourselves, “Compared to what?” (Reference what) and then classify gains and losses.

Answer 1

Reference Dependence

Question 2

People take greater risks when they are faced with a given probability of bad luck than the same probability of being cheated by another person.

Answer 2

Betrayal Aversion

Question 3

A concept that challenges the notion of human rationality: there are limits to our thinking capacity, available information, and time.

Answer 3

Bounded Rationality

Question 4

Human resistance to “unfair” outcomes - occurs when people prefer fairness and resist inequalities.

Answer 4

Inequity aversion

Question 5

This term refers to the fact that human beings often take actions that they know to be in conflict with their own long-term interests

Answer 5

Bounded Willpower

Question 6

These signal appropriate behaviour and are classed as behavioural expectations or rules within a group of people.

Answer 6

Social Norms

Question 7

A term that reflects when decisions are often simply good enough in light of the costs and constraints involved.

Answer 7

Satisficing

Question 8

The theory that considers economic actions to be the result of both monetary incentives and people’s self-concepts.

Answer 8

Identity Economics

Question 9

The term used to describe the concept that people have a tendency to prefer avoiding losses to acquiring equivalent gains

Answer 9

Loss Aversion

Question 10

The mental discomfort experienced by a person who simultaneously holds two or more contradictory beliefs, ideas, or values - triggered by a situation in which a belief of a person clashes with new evidence.

Answer 10

Cognitive Dissonance

Question 11

The system of thinking that refers to conscious reasoning.

Answer 11

Deliberative System

Question 12

The system of thinking that is automatic, intuitive, and relatively unconscious

Answer 12

Automatic System

Question 13

Underestimating how long it will take to compete a task and ignoring the past experience

Answer 13

Planning fallacy

Question 14

Continuing a behaviour or endeavor as a result of previously invested resoures (time, $, effort)

Answer 14

Sunk Cost Fallacy

Question 15

Information that stands out, is novel, or seems relevant is more likely to affect our thinking and actions

Answer 15

Salience

Question 16

When people’s subjective confidence in their own ability is greater than their actual performance

Answer 16

Overconfidence effect

Question 17

Commonly defined as cognitive shortcuts or rule of thumb we apply using our automatic thinking processes

Answer 17

Heuristics

Question 18

When we overvalue a good that we own, regardless of its objective market value

Answer 18

Endowment effect

Question 19

the systematic (nonrandom) errors in thinking we may be left with when we make decisions

Answer 19

Cognitive biases

Question 20

The tendency to automatically interpret information in ways that support prior beliefs and gives rise to a biased information search.

Answer 20

Confirmation Biases

Question 21

Describes how choices can be worded in a way that highlights the positive or negative aspects of the same decision, leading to changes in their relative attrativeness.

Answer 21

Framing

Question 22

A form of priming effect whereby initial exposure to a stimuli serves as a reference point, influencing subsequent judgements about value.

Answer 22

Anchoring Biases

Question 23

A technique whereby exposure to one stimulus influences a response to a subsequent stimulus, without conscious guidance or intention.

Answer 23

Priming

Question 24

An overweighting of the present relative to the future that results in inconsistencies in choices over time.

Answer 24

Present Biases

Question 25

The study of how we make choices about what and how much to do at various points in time when choices at one time influence the possibilities available at other points in time.

Answer 25

Interemporal Choice

Question 26

Occurs when we do not consider the consequences of a small dollar transaction; as a result, they incur high costs or forgo lucrative opportunities.

Answer 26

Peanuts Effect Bias

Question 27

The model that deals with the inconsistency between the patient long-run self and myoptic short-run self

Answer 27

Dual-self model

Question 28

The theory that we weight present events more heavily than future ones

Answer 28

time (temporal) discounting

Question 29

if people make combined choices of quantities of goods for future consumption, they choose more variety than if they make separate choices immediately preceding consumption

Answer 29

Diversification bias

Question 30

Occurs when people react to a particular choice in different ways depending on how it is presented

Answer 30

Framing bias

Question 31

A theory that suggests changes in experiences tend only to induce happiness temporarily as we get used to new circumstances

Answer 31

Hedonic adaptation

Question 32

When people make judgements about the likelihood of an event based on how easily an example, instance, or case comes to mind.

Answer 32

Accessibility/Availability bias