Behavioral Economics: Checkpoint 1

Covers why people make irrational decisions, cognitive biases, and nudges.

Five questions on why real decisions depart from the purely rational model, and how that gap can be designed around.

Question 1 of 5 'Bounded rationality' describes decision-making that is:

Always perfectly optimal Limited by real constraints on information, time and mental effort Completely random Only relevant to financial professionals

Question 2 of 5 'Confirmation bias' is the tendency to:

Seek out and remember information that confirms existing beliefs Always change your mind when shown new evidence Forget information immediately after reading it Only trust official statistics

Question 3 of 5 Studies on 'overconfidence' among individual investors generally find that:

They trade less often and earn higher returns than average They trade more often and earn lower returns than a simple buy-and-hold strategy Overconfidence has no measurable effect on returns Only professional investors show overconfidence

Question 4 of 5 A 'nudge' works by:

Banning an option entirely Changing how a choice is presented, without restricting any option Raising the price of the less-preferred option Requiring a government permit

Question 5 of 5 An automatic-enrollment retirement plan (opt-out instead of opt-in) is an example of:

A tariff A default option nudging behavior A trade sanction A central bank policy

← Back to Nudges Next lesson → Incentives

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