Angelica G.

Pasahol

BSA–1A

Differentiate the following:

A. Sunk-cost fallacy

It occurs when an individual or a company continue to do an action because of their past

decisions that they already splurge money for it rather than a rational choice what will maximize
their utility at this present time. It is when what done cannot be undone. For example, when
someone eat in a buffet which is eat all you can. They don’t have any choice but to eat and eat
even they are already full because they paid for it.

B. Status quo bias

It refers to one's environment and situation remains as they already are. It has a great part in
decision-making: when we make decisions, we tend to prefer the more familiar choice over the
less familiar, but potentially more beneficial, options. For example, you always buy Gardenia
bread in the grocery store because it commits your standards and expectation that you are
looking in bread. However, there is a new brand of bread in a market. Thus, you would rather to
buy Gardenia again since you are familiar with this brand already.

C. Anchoring

It is a term used in psychology to describe the common human tendency to rely too heavily
on the first piece of information seen. In decision making, anchoring occurs when individuals
use an initial piece of information to make subsequent judgments. Once an anchor is set, other
judgments are made by adjusting away from that anchor, and there is a bias toward interpreting
other information around the anchor. For example, you go to the mall saw a bag that cost Php
799 and you thought that it is too pricy. After few days, the mall announces that they will be
having a sale. You go to mall to roam around to enjoy the sale and then you saw a bag that cost
Php 1000 before and it’s just 799 now because of the sale. And you have decided to buy it
because you’ll save Php 200 without remembering that the price of the bag before the sale is
same as what it cost now.