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In: Finance

The Brain Game The purpose of this assignment is to introduce you to the well-known scientific...

The Brain Game

The purpose of this assignment is to introduce you to the well-known scientific fact that humans do not make decisions rationally. Most of the time, decisions are made without people even realizing the “why” behind their decisions. Our decisions are often driven by our own biases instead of logic or good judgement. These numerous “poor instincts” are called cognitive biases. It is important to identify cognitive biases in Personal Finance because they cause so many of the common financial errors in our society. Google defines these as follows: “Cognitive biases are tendencies to think in certain ways that can lead to systematic deviations from a standard of rationality or good judgment, and are often studied in psychology and behavioral economics.” This is one reason why in personal finance, learning the tools tends to be much easier than applying them.

First, find a list of cognitive biases online. Second, pick four cognitive biases that are related to personal finance. Third, fill out the details below for each one.

1.a. Name(s) of the bias:______________________________________________

1.b. Definition of this bias:
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1.c. Example of how this bias affects personal finance decisions:
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1.d. Products or services that attempt to correct this bias:
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2.a. Name(s) of the bias:______________________________________________

2.b. Definition of this bias:
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____________________________________________________________________________
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2.c. Example of how this bias affects personal finance decisions:
____________________________________________________________________________
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2.d. Products or services that attempt to correct this bias:
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________

 
3.a. Name(s) of the bias:______________________________________________

3.b. Definition of this bias:
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________

3.c. Example of how this bias affects personal finance decisions:
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
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3.d. Products or services that attempt to correct this bias:
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________

 
4.a. Name(s) of the bias:______________________________________________

4.b. Definition of this bias:
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________

4.c. Example of how this bias affects personal finance decisions:
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________

4.d. Products or services that attempt to correct this bias:
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________







Solutions

Expert Solution

A. List of Cognitive biases

Most of the decisions we believe we’re making with a clear mind are actually controlled by mental shortcuts known as cognitive biases.

List of Cognitive biases :

1. Confirmation bias

2. Conformity bias

3. Authority bias

4. Loss aversion bias

5. False casualty bias

6. Action bias

7. Self serving bias

8. Framing bias

9. Ambiguity bias

10. Strategic mis representation

11. Bandwagon bias

12. Projection bias

13. Pro innovation bias

14. Anchoring bias

15. Status quo bias

16. Feature positive effect

B. Four cognitive biases related to Finance

jeff jeffy answered 2 years ago
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