A Physician Is Trying to Convince a Man That He

question 51

Multiple Choice

A physician is trying to convince a man that he must give up smoking. The man initially believes that the probability of lung cancer is increased by only 10% if he smokes. Why are decision-making heuristics relevant to this situation?

• A) The situation will encourage the conjunction fallacy.
• B) The probability of an illusory correlation is increased.
• C) Familiarity distorts availability judgments.
• D) The man's estimate will be influenced by a low anchor.

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Definitions:

Payback

The period of time required for the return on an investment to "pay back" the initial capital outlay.

Cost of Capital

Cost of capital refers to the minimum rate of return a company must earn on its investments to satisfy its investors, creditors, and other providers of capital.

NPV

Net Present Value, a method for assessing the worth of a project or investment by applying a discount rate to future cash flows to ascertain their current value.

Crossover Rate

The rate at which two projects have the same net present value, used in capital budgeting to compare the attractiveness of different projects.