Review yesterday’s lesson by answering the questions below.

Behavioral economics…
a. Is a field of economics that studies people who make rational and objective decisions
b. Analyzes how different economies around the world behave over time
c. Tracks and examines stock market trends over a certain period of time
d. Combines economics and psychology to study why people behave the way they do in the real world

Cognitive bias is…
a. An error in the way we think that can influence our decisions
b. The desire to seek out information that confirms our existing beliefs
c. The belief that our abilities are better than they actually are
d. The concept of placing more value on an item when we own it

You go to a restaurant and order a big meal. Even though you’re full, you keep eating because it was expensive. This is an example of…
a. Mental Accounting
b. The Sunk Cost Fallacy
c. Fear of Missing Out
d. The Endowment Effect

Play Quizlet.

Dollar Auction: You will be participating in a simulated auction for a twenty-dollar bill. The rules are below.

1. 1. You will have the opportunity to make bids in an attempt to win the auction. 
   2. You can choose to stop bidding at any point. 
   3. There is one catch: only the highest bidder wins the twenty-dollar bill, but the top two bidders have to pay the amount they bid, regardless of whether or not they won the auction.
   4. The bidding will start at one dollar.
   5. If you would be willing to pay one dollar to receive the twenty-dollar bill you should raise your hand. 
   6. The bidding amount will increase one dollar at a time. If you are willing to pay the new amount, you should raise your hand.

Watch The (Ir)rationality of the Dollar Auction video as a class.

Learning Target:

• I can explore and experience a variety of cognitive biases.