Heuristics Are Useful Mental Shortcuts but They Also Have Drawbacks

question 100

Multiple Choice

Heuristics are useful mental shortcuts but they also have drawbacks.What could be considered one disadvantage of using the availability heuristic?

• A) People may give less weight to higher probability events compared with more vivid or scarier lower probability events.
• B) Using the availability heuristic results in greater use of the base rate.
• C) When using the availability heuristic people do not consider information about an individual's personality
• D) The availability heuristic takes a great deal of controlled processing.

---

Definitions:

Option Contract

A financial contract giving the buyer the right, but not the obligation, to buy or sell an asset at a set price on or before a certain date.

Exercise Price

The specified price at which an option holder can buy (in a call option) or sell (in a put option) the underlying asset.

Leveraged Firm

A company that uses a high level of debt to finance its operations.

Call Option

A financial contract that gives the buyer the right, but not the obligation, to buy an asset at a specified price within a specific time.