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Questions and Answers

Which of the following scenarios best illustrates the 'public goods dilemma' as described in behavioral economics?

A group of colleagues decides to contribute to a common fund for office improvements, but some individuals use the improvements without contributing. (correct)
An individual chooses to donate blood, despite the inconvenience, to ensure there is an adequate supply for those in need.
A company decides to invest in environmentally friendly practices, even though it may reduce their short-term profits.
A government implements a tax rebate program to encourage citizens to purchase energy-efficient appliances.

A company implements a policy where employees receive public recognition for their achievements in addition to their regular salary. Which behavioral economics principle is the company leveraging to motivate its employees?

Loss aversion
Anchoring bias
Reciprocity and fairness (correct)
Availability heuristic

How can an understanding of bounded rationality assist in organizational management?

By reinforcing the importance of strict adherence to traditional economic theories.
By encouraging managers to assume employees always make rational decisions.
By improving decision-making processes, acknowledging that individuals have cognitive limitations. (correct)
By helping leaders make optimal decisions using complex mathematical models.

Which of the following marketing strategies best demonstrates the application of 'framing' from a behavioral economics perspective?

Advertising a product as '95% fat-free' rather than 'containing 5% fat'. (C) Signup and view all the answers

Which of the following demonstrates the use of a 'nudge' in policy design?

Implementing a default option for organ donation where citizens are automatically enrolled but can opt-out. (A) Signup and view all the answers

Which of the following best describes the core difference between traditional economics and behavioural economics?

Traditional economics assumes individuals are fully rational decision-makers, whereas behavioural economics acknowledges cognitive biases and irrationality. (A) Signup and view all the answers

According to the principles of bounded rationality, which factor does NOT typically constrain decision-making?

The availability of absolute and complete information. (B) Signup and view all the answers

How does satisficing behaviour, as described in bounded rationality, differ from optimizing behaviour?

Satisficing aims for a 'good enough' solution, while optimizing strives for the absolute best outcome. (C) Signup and view all the answers

A marketing team is launching a new product and decides to focus their advertising on the product's brand reputation, rather than detailed feature comparisons. Which concept of behavioural economics does this strategy reflect?

Bounded rationality. (A) Signup and view all the answers

Which of the following criticisms is often leveled against the concept of bounded rationality?

It lacks concrete strategies, making generalization difficult. (D) Signup and view all the answers

A municipality wants to increase recycling rates. Using a 'nudge' based on behavioural insights, which intervention is most likely to be effective?

Providing larger recycling bins and making them more accessible than garbage bins. (A) Signup and view all the answers

You are tasked with choosing a new software platform for your team. Instead of rigorously comparing every feature of all available options, you select the first platform that meets your team's essential needs. Which aspect of bounded rationality are you demonstrating?

Satisficing behavior. (C) Signup and view all the answers

In what area has behavioural economics NOT had a significant impact?

Quantum physics. (A) Signup and view all the answers

Which heuristic leads individuals to overestimate the likelihood of events that are readily available in their memory, often due to media exposure?

Availability heuristic (D) Signup and view all the answers

A real estate agent initially shows a client a house priced significantly above their budget. How might this influence the client's subsequent offers on more reasonably priced homes?

It serves as an anchor, potentially causing the client to perceive the reasonably priced homes as more affordable in comparison. (C) Signup and view all the answers

How does the concept of 'loss aversion' influence decision-making, according to behavioral economics?

People are more sensitive to the pain of a loss than the pleasure of an equivalent gain. (B) Signup and view all the answers

A company advertises a product as '95% fat-free' rather than 'contains 5% fat'. Which of the following behavioral economics concepts is being utilized?

Framing (D) Signup and view all the answers

Traditional economic models assume individuals act out of self-interest. How does behavioural economics broaden this view?

By recognizing that individuals also consider social comparisons, fairness, and reciprocity. (C) Signup and view all the answers

In a negotiation, the first offer often sets a standard for subsequent discussions. This effect is best explained by which cognitive bias?

Anchoring Bias (B) Signup and view all the answers

What is the key distinction between traditional economics and behavioral economics regarding altruism?

Traditional economics views individuals as purely self-interested, while behavioral economics acknowledges altruistic behavior. (D) Signup and view all the answers

Which concept explains why people are more likely to support a policy framed as preventing a loss than one framed as promoting an equivalent gain?

Loss aversion (D) Signup and view all the answers

Flashcards

Behavioural Economics

A field blending psychology, economics, and cognitive science to understand decision-making.

Bounded Rationality

The idea that our decision-making is limited by our brains, time, and available information.