Financial Literacy Quiz 1:3

What is the main concept that traditional economics relies on?

• A. Rational choice theory

• B. Cognitive bias

• C. Herd mentality

• D. Personal Finance

Which cognitive bias describes valuing something more just because you own it?

• Loss aversion

• Sunk cost fallacy

• Endowment effect

• Anchoring bias

In behavioral economics, what is a heuristic?

• A. A financial strategy to increase savings

• B. A mental shortcut used for decision-making

• C. An investment in technology stocks

• D. Another word for cognitive bias.

Which cognitive bias is exemplified by holding onto a declining stock to avoid realizing a loss?

• A. Endowment effect

• B. Herd mentality

• C. Sunk cost fallacy

• D. Loss aversion

What is cognitive bias?

What does the rational choice theory suggest about how individuals make decisions?

• They make decisions based on gut feelings and emotions.

• They make decisions through rational calculations to maximize their self-interest.

• They follow the actions and opinions of a group.

• They make decisions based on mental shortcuts and cognitive biases.

What term describes the tendency to follow the actions and decisions of a group?

• Herd mentality

• Anchoring bias

• Mental accounting

• Rational choice theory

When someone decides to keep their vacation savings separate from their debt repayment funds, which cognitive bias are they demonstrating?

• Sunk cost fallacy

• Endowment effect

• Anchoring bias

• Mental accounting

How can individuals mitigate the negative influence of cognitive biases on financial decisions?

• Make decisions quickly

• Avoid setting financial goals

• Boost financial literacy

• Ignore other opinions

What does the sunk cost fallacy lead individuals to do?

• Justify further investments based on previously incurred costs

• Place undue emphasis on the first piece of information received

• Value something more because they own it

• Only stick with an underperforming investment if a very large amount of money was invested.