In Developing Prospect Theory, Which of the Following Did Behavioral

question 155

Multiple Choice

In developing prospect theory, which of the following did behavioral economists not discover about people's reaction to goods and bads?

• A)People feel equivalent losses and gains in equal measure, supporting the assumption that consumers behave rationally.
• B)People are generally loss averse, feeling losses more intensely than gains.
• C)People judge good and bad outcomes relative to the status quo.
• D)People experience both diminishing marginal utility from gains and diminishing marginal disutility from losses.

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Definitions:

Opportunity Cost

The forfeiture of potential benefits from other options by selecting a specific one.

Fixed Costs

Business expenses that remain constant regardless of the level of production or sales activities, such as rent, salaries, and insurance.

Variable Costs

Costs that change in proportion to the level of goods or services a company produces.

Sunk Costs

Costs that have already been incurred and cannot be recovered, and thus should not affect future economic decisions.