Behavioral Economics: Loss Aversion, the Decoy Effect, and the Power of Free

40 questions · by Quizbun

Forty questions on the most famous findings in behavioral economics — why losses hurt about twice as much as equivalent gains, how a useless third option (the decoy) can flip your choice, and why the word free makes us behave irrationally. Each question pairs a tempting wrong answer with an explanation that teaches the underlying mechanism, followed by a reference to the original research or a primary source for verification and further reading. Covers prospect theory, the endowment effect, framing, anchoring, mental accounting, nudges, the ultimatum game, and the Nobel-winning work of Kahneman, Tversky, Simon, and Thaler.

Start

Questions

Not answered. What does loss aversion describe?
Not answered. Roughly how much more does a loss tend to loom than an equivalent gain, by Tversky and Kahneman's 1992 estimate?
Not answered. Who introduced prospect theory, the framework that formalized loss aversion?
Not answered. In which year did Kahneman and Tversky publish their landmark Prospect Theory paper in Econometrica?
Not answered. Which statements about the prospect theory value function are correct?
Not answered. How does loss aversion differ from ordinary risk aversion?
Not answered. Prospect theory predicts people are risk-averse for gains but risk-seeking for losses. What is this pattern called?
Not answered. In the classic Asian disease problem, why do people flip from a cautious choice to a risky one?
Not answered. What is the endowment effect?
Not answered. In the Cornell coffee-mug experiment (Kahneman, Knetsch & Thaler, 1990), what did the researchers find?
Not answered. What is the most common explanation for the endowment effect?
Not answered. What is status quo bias?
Not answered. In investing, the disposition effect is the tendency to…
Not answered. What is the sunk cost fallacy?
Not answered. Which of the following are commonly explained as consequences of loss aversion?
Not answered. Prospect theory says people overweight small probabilities. Which everyday pair of behaviors does this help explain?
Not answered. What is the decoy effect (also called the attraction or asymmetric-dominance effect)?
Not answered. In Dan Ariely's Economist subscription example, what role did the $125 print-only option play?
Not answered. In Ariely's Economist study, when the print-only decoy was on the menu, what percentage of students chose the $125 print+web bundle? (whole number)
Not answered. Why is an effective decoy described as asymmetrically dominated?
Not answered. The decoy effect breaks a principle of rational choice. Which one?
Not answered. How does the compromise effect differ from the decoy effect?
Not answered. Which researchers first documented the attraction (asymmetric-dominance) effect in a 1982 study?
Not answered. What is the zero price effect?
Not answered. In the Hershey's Kiss vs. Lindt truffle experiment, what happened when the Kiss dropped from 1¢ to free (and the Lindt from 15¢ to 14¢)?
Not answered. Ariely argues that free makes us irrational largely because it removes which feeling?
Not answered. Amazon's free-shipping promotion boosted sales everywhere except France for a time. What went wrong?
Not answered. A rigged wheel of fortune that stopped on 10 or 65 shifted people's guesses about how many African nations are in the UN. Name the one-word bias this demonstrates.
Not answered. What is mental accounting?
Not answered. What does hyperbolic discounting (present bias) describe?
Not answered. In Thaler and Sunstein's book Nudge, what is a 'nudge'?
Not answered. Countries with opt-out organ donation have far higher donor rates than opt-in countries. Which effect is at work?
Not answered. In the ultimatum game, responders often reject low offers (say, $2 out of $10) and so get nothing. What does this reveal?
Not answered. Iyengar and Lepper's famous jam study (2000) suggested what about offering more choices?
Not answered. The peak–end rule says our memory of an experience is dominated by…
Not answered. Which of these figures have received the Nobel Memorial Prize in Economic Sciences?
Not answered. Herbert Simon's concept of bounded rationality says that people…
Not answered. After watching dramatic coverage of a plane crash, people overestimate the danger of flying. Which mental shortcut is this?
Not answered. What is the IKEA effect?
Not answered. The Allais paradox exposed people's pull toward certainty. What is the certainty effect?