Behavioral Economics: Checkpoint 2

Covers incentives, loss aversion, and present bias.

Five questions on how incentives, loss aversion and present bias shape everyday financial decisions.

Question 1 of 5 Introducing an extrinsic reward for a behavior someone already did for intrinsic reasons can sometimes:

Permanently increase their motivation Reduce their motivation once the reward is removed Have no effect on motivation at all Only work for financial behaviors

Question 2 of 5 Loss aversion means people generally feel the pain of a loss:

Less intensely than an equivalent gain feels good About twice as intensely as an equivalent gain feels good Exactly as intensely as an equivalent gain Only when the loss involves cash, not investments

Question 3 of 5 The 'endowment effect' describes the tendency to:

Value something more highly once you already own it Always sell possessions quickly Avoid owning anything of value Prefer renting over owning

Question 4 of 5 'Present bias' describes a preference for:

Larger rewards later, even over smaller immediate ones Smaller rewards now over larger rewards later, even when waiting is clearly better Rewards that never expire No reward at all

Question 5 of 5 A 'commitment device', like an automatic savings transfer, works by:

Increasing the reward for saving Locking in a decision in advance, before present bias can interfere Eliminating the need to ever save Requiring government approval to spend

← Back to Present Bias Next lesson → Anchoring

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