CEA Behavioral Economics and Decision Theory

Question 1

Which concept in behavioral economics describes the tendency for individuals to weigh losses more heavily than equivalent gains?

Accepted Answer

Loss aversion

Answer

Confirmation bias

Answer

Anchoring effect

Answer

Sunk cost fallacy

Question 2

The 'endowment effect' in behavioral economics refers to which phenomenon?

Accepted Answer

People overvalue things they already own

Answer

People underestimate future costs

Answer

People prefer immediate rewards over larger future rewards

Answer

People anchor decisions to irrelevant numbers

Question 3

What does 'hyperbolic discounting' describe in behavioral economics?

Accepted Answer

Preference for immediate rewards that leads to time-inconsistent choices

Answer

Overweighting of low-probability events

Answer

Tendency to follow the choices of others

Answer

Bias toward confirming existing beliefs

Question 4

In prospect theory, how are outcomes typically evaluated?

Accepted Answer

Relative to a reference point rather than in absolute terms

Answer

Based solely on expected utility maximization

Answer

According to revealed preference theory

Answer

Using cardinal utility functions only

Question 5

Which term describes the behavioral economics concept where people rely too heavily on the first piece of information encountered when making decisions?

Accepted Answer

Anchoring

Answer

Framing

Answer

Herding

Answer

Satisficing

Question 6

What is 'nudge theory' as applied in public policy economics?

Accepted Answer

Designing choice environments to guide people toward better decisions without restricting options

Answer

Using tax incentives to change consumer behavior directly

Answer

Mandating certain behaviors through regulation

Answer

Providing direct cash transfers to influence choices