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Foundations of Behavioural Economics

Behavioural Economics

A rigorous examination of core behavioural economics principles, cognitive biases, and foundational theories.

psychology economics decision-making

8 Questions Hard Ages 18+ Apr 5, 2026

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About this Study Set

This study set covers Behavioural Economics through 8 practice questions. A rigorous examination of core behavioural economics principles, cognitive biases, and foundational theories. Every question includes the correct answer so you can learn as you go — pick any format above to get started.

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1 In Prospect Theory, what is the term for the observation that losses loom larger than equivalent gains, typically by a factor of 1.5 to 2.5?

A Loss aversion
B The endowment effect
C Hyperbolic discounting
D Framing bias

2 Which heuristic, identified by Tversky and Kahneman, describes the tendency for people to estimate the probability of an event based on the ease with which examples come to mind?

A Representativeness heuristic
B Availability heuristic
C Affect heuristic
D Anchoring and adjustment

3 What concept describes the phenomenon where individuals place a higher value on an object simply because they own it?

A The sunk cost fallacy
B The status quo bias
C The endowment effect
D The decoy effect

4 According to Dual Process Theory, which system is characterised as being fast, automatic, frequent, emotional, and subconscious?

A System 1
B System 2
C The reflective system
D The analytical system

5 Which economic model is explicitly challenged by behavioural economics for its assumption that individuals act as perfectly rational, self-interested agents?

A Keynesian model
B Rational Choice Theory
C Game Theory
D Supply-side economics

6 What is the 'sunk cost fallacy' in the context of decision-making?

A Overestimating future benefits
B Continuing a behaviour as a result of previously invested resources
C Ignoring the opportunity cost of time
D Choosing the first option presented

7 In the context of intertemporal choice, what does 'hyperbolic discounting' describe?

A The tendency to prefer larger rewards later
B The preference for smaller, immediate rewards over larger, delayed ones
C A linear decrease in the value of future rewards
D The inability to calculate interest rates

8 Which term refers to the deliberate design of the environment in which people make choices, aimed at influencing them in a predictable way without forbidding options?

A Coercion
B Libertarian paternalism
C Default manipulation
D Rational nudging

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