29 Questions
What is a common problem according to the text?
Procrastination and self-control issues
Which principle of Behavioral Economics involves caring about the actions, intentions, and payoffs of others?
Principle 4
What type of example is given to highlight the importance of social preferences in Behavioral Economics?
Ultimatum Game
What can partially help protect individuals from behavioral biases?
Limiting people's choices
Which statement best summarizes the practical implications of heavy-handed paternalism according to the text?
It is unpopular and often ineffective
Why do our final estimates tend to get biased by anchoring heuristics?
The initial anchor heavily influences our final estimates
What concept does the quote 'If we plant an idea or a number in your head, it has a very big effect on subsequent judgements' relate to?
Anchoring bias
In what way can 'decoys' be used to influence decision-making in example situations like the ones mentioned?
To steer decisions towards a particular choice
How does the Availability Bias impact people's judgments?
It leads people to base judgments on readily available examples
Why do recent events have a greater impact on behavior according to the Availability Bias?
Recent events are more vivid and easily recalled
'Lynda is 31 years old, single, outspoken and very bright.' What type of cognitive bias is this an example of?
Representativeness bias
According to Prospect Theory, what is the concept of reference-dependent utility based on?
Comparison to a reference point
In Prospect Theory, what does 'loss aversion' refer to?
People dislike losses more than they like gains of the same size
How does the value function in Prospect Theory differ between gains and losses?
It is much steeper for losses than for gains
What aspect of individual decision-making does Prospect Theory challenge?
Expected utility theory assumptions
What role do reference points play in Prospect Theory's analysis of decision-making?
They influence how gains and losses are evaluated
How does Prospect Theory explain people's willingness to take risks to exceed a reference point?
Based on fear of losses
Which type of preferences are time-consistent according to economists?
Exponential preferences
In the hyperbolic discounting model, what does the term '𝛽' represent?
Short-term discount factor
What is the key characteristic of present-biased preferences?
Giving stronger relative weight to the earlier moments
What phenomenon does hyperbolic discounting aim to capture?
Greater patience for tradeoffs in the future
How does hyperbolic discounting differ from exponential discounting?
It gives stronger weight to immediate rewards
What does the beta-delta model in hyperbolic discounting aim to explain?
The dynamic inconsistency in decision-making
What is the endowment effect?
When people value items they own more highly than identical items they do not own
What do experiments typically find regarding the gap between selling and buying prices in relation to the endowment effect?
Selling prices are about twice as high as buying prices
In the context of the mug experiment, why do owners usually value their mugs more highly according to standard theory?
Due to reference dependence and loss aversion
What would be more surprising based on standard, reference-independent theory when randomly giving half of the students mugs and eliciting buying and selling prices?
To find no difference between owners and non-owners in their valuations of the mugs
How can the endowment effect be conceptualized?
As a combination of reference dependence and loss aversion
Why might there be a large gap between buying and selling prices in the context of the endowment effect?
Endowing someone with an item instantaneously makes them value it more highly
Explore the concepts of prospect theory, reference-dependent utility, and how they challenge classical assumptions on decision-making. Learn about how people evaluate gains and losses, and make gambles over monetary outcomes.
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