Mistakes in decision-making flashcards

Question 1

Anchoring bias?

Accepted Answer

First number encountered (e.g. 'was £200, now £80') disproportionately influences judgment — insufficient adjustment from anchor.

Question 2

Framing effect?

Accepted Answer

Same information presented differently alters choice — '90% fat-free' preferred over '10% fat' (identical product).

Question 3

Loss aversion (Kahneman & Tversky)?

Accepted Answer

Losses feel roughly twice as painful as equivalent gains — drives fear of missing sales and endowment effect.

Question 4

Sunk cost fallacy?

Accepted Answer

Continuing investment because of past spending — e.g. keeping unused gym membership because already paid.

Question 5

Endowment effect?

Accepted Answer

Owning something increases its perceived value — free trials and return policies exploit this.

Question 6

Marketer exploitation?

Accepted Answer

RRP anchoring, limited-time offers (scarcity), and 'was/now' pricing trigger these biases (2.4.2, 2.5.1).

Question 7

What is the anchoring bias in a consumer context?

Accepted Answer

A cognitive bias where consumers rely too heavily on the first piece of information (the 'anchor'), such as an initial price, when making purchasing decisions.

Question 8

Explain the framing effect using a consumer example.

Accepted Answer

Presenting the same information in different ways to alter perception. For example, labelling minced beef as '80% lean' (positive frame) is more appealing than '20% fat' (negative frame).

Question 9

Define the sunk cost fallacy.

Accepted Answer

The tendency to continue an action or investment because of previously invested resources (time, money, effort), even when it is no longer the most rational choice.

Question 10

How does overconfidence bias affect consumer decisions?

Accepted Answer

It causes consumers to overestimate their knowledge or ability, leading to insufficient product research, underestimation of long-term costs (e.g., credit), and poor purchasing choices.

Question 11

What is the psychological principle often linked to the framing effect?

Accepted Answer

Loss aversion, which is the tendency to prefer avoiding losses over acquiring equivalent gains. People feel the pain of a loss more strongly than the pleasure of a gain.