Cognitive Biases Quiz

Cognitive Biases and Decision-Making

• A cognitive bias is an error in thinking that affects decision-making and judgment
• The status quo bias is a cognitive bias where people tend to maintain the current situation rather than making a change
• This bias manifests in decision-making by making people prefer the default option rather than considering alternative options

Default Options and Decision-Making

• Default options have a significant impact on decision-making, as people tend to stick with the default choice
• This is why default opt-out options often result in higher participation rates than default opt-in options
• The power of default options explains why people often continue to receive spam messages despite not wanting them

Mental Shortcuts in Decision-Making

• Using mental shortcuts (heuristics) in decision-making can lead to errors and biases
• The problem with using mental shortcuts is that they can lead to inaccurate or incomplete information being used in decision-making

Accounting and Closing Process

Closing Entries

• The purpose of closing entries in accounting is to transfer the temporary account balances to the retained earnings account
• The accounts closed during the closing process are revenue, expense, and dividend accounts
• An income summary account is used in the closing process to temporarily hold the revenue and expense balances
• Accountants typically perform the closing process at the end of an accounting period (e.g., year, quarter)
• The goal of making closing entries is to reset the temporary accounts to zero and update the retained earnings account