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Principles of Behavioural Economics

Behavioural Economics

An exploration of key theories and empirical findings in behavioural economics and cognitive psychology.

psychology decision-making economics

8 Questions Medium Ages 18+ Oct 24, 2026

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About this Study Set

This study set covers Behavioural Economics through 8 practice questions. An exploration of key theories and empirical findings in behavioural economics and cognitive psychology. 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 What does the 'Endowment Effect' describe in behavioural economics?

A The tendency to overestimate the value of an object simply because one owns it
B The tendency to purchase goods only when they are on sale
C The preference for immediate rewards over long-term gains
D The belief that past events dictate future outcomes

2 According to prospect theory, how do individuals typically perceive losses compared to equivalent gains?

A Losses are perceived as less significant than gains
B Losses are perceived as roughly twice as painful as gains are pleasurable
C Gains and losses are perceived with equal emotional intensity
D Gains are perceived as having more impact due to the optimism bias

3 What is the 'Availability Heuristic' primarily defined as?

A A mental shortcut relying on immediate examples that come to mind when evaluating a topic
B The preference for information that confirms pre-existing beliefs
C The tendency to rely on the first piece of information offered
D The systematic overestimation of one's own abilities

4 In the context of behavioural science, what is a 'Nudge'?

A A financial penalty for irrational behaviour
B An intervention that alters people's behaviour in a predictable way without forbidding options
C A mandatory regulation enforced by government policy
D A discount applied to encourage bulk purchasing

5 The 'Hyperbolic Discounting' model explains why humans often:

A Choose larger, later rewards over smaller, immediate ones
B Prefer smaller, immediate rewards over larger, later ones
C Ignore long-term financial planning entirely
D Calculate interest rates incorrectly

6 What does the 'Sunk Cost Fallacy' involve?

A Investing in a project because of the emotional attachment to the people involved
B Continuing an endeavour based on cumulative prior investment despite new evidence suggesting it is irrational
C The tendency to undervalue assets that have been held for a long time
D The psychological need to recover lost social status

7 Which bias explains the tendency for people to rely too heavily on the first piece of information they receive when making decisions?

A Framing effect
B Anchoring bias
C Hindsight bias
D Dunning-Kruger effect

8 What is 'Mental Accounting' as proposed by Richard Thaler?

A The habit of keeping a formal ledger of all daily expenses
B The psychological process where people treat money differently depending on its source or intended use
C The inability to distinguish between gross and net income
D The tendency to over-calculate the costs of luxury items

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