Exam 16: Application Module- Social Psychology and Personal Finance

David has $10,000 worth of stocks in his trading account. He needs to cash in $1,000 worth of stock to make a purchase. He could sell shares in one stock (Jupiter, Inc.) that cost him $2,000 initially but is now only worth $1,000, or he could sell shares in another stock (Mercury Co.) that he bought for $500 but is now worth $1,000. Even though the amount of money withdrawn would be the same, which stock is he more likely to cash out?

Jacquie has just lost $100 on a bet with a friend. The friend offers her a double-or-nothing deal, which would result in either her winning back her $100 and having no loss or losing a total of $200. The alternative would simply be to accept her already certain loss of $100. According to the principle of diminishing marginal utility, Jacquie will be more likely to

According to the textbook, research has found that people experience greater neural activation when considering ________ than when considering ________.

The price of stock in Computer Literacy, Inc., increased by 33 percent in one day when it changed its name to fatbrain.com. This illustrates the

Individuals tend to have a negative reaction to losing an amount of money-a reaction that is stronger in magnitude than the positive reaction associated with gaining the same amount of money. This is referred to as

Challenge the long-held assumption that people make rational financial decisions. Provide two pieces of evidence in support of your position.

According to what you know about mental accounting, if you were a government official who wanted to stimulate the economy by increasing spending, which of the following should you do?

Imagine that a friend is thinking of opening up a shop and asks you how many different products she should sell. Explain the concept of decision paralysis and design a product plan for your friend's new store.

One key strategy to having sufficient savings later in life is to start saving early. Why is this recommended?

Jerome's investment performance has not been very good. He studies behavioral economics to get a better understanding of his poor performance and finds that, like many other people, he was more likely to buy stocks (contributing to market performance)

Maria insists that she go see a movie for which she purchased nonrefundable tickets, even though she is exhausted and has no desire to see the movie. This best illustrates

The inability to make a decision in the presence of too many options is known as

Define sunk cost fallacy and describe one research finding that demonstrates this phenomenon.

Rhonda and June are both planning a trip to Las Vegas. Rhonda saved up for six months to pay for the trip, whereas June was given plane tickets and hotel lodging as a bonus from her employer. In both cases, the purchase of the trip is nonrefundable. Two days before the trip, Rhonda and June both develop bronchitis and have a strong desire to cancel the trip. Given this situation, which of the following is true?

Deborah went to the casino with $1,000 and has managed to win an additional $500. At this point, she has $1,500 in her possession; however, she separates this money into $1,000 that she stores in her purse, and the remaining $500, with which she continues to gamble. Deborah's behavior illustrates the phenomenon of

Explain what is meant by mental accounting and describe the disadvantages of mental accounting for financial decision making.

Behavioral economists have revealed what about people's financial decision making?

Decision paralysis is best illustrated by

When psychologists began applying insights from psychology to develop models about economic behavior, they were developing the field of

Melinda and Julie want to get off to a great start with their new business selling baby toys. Melinda proposes that they offer at least thirty-five different types of stuffed animals to give their consumers a wide range of choices; however, Julie counters that they should start with only five different stuffed animals. If their primary goal is to encourage consumers to buy stuffed animals, whose approach is correct?