Test Markets Can Only Be Used to Test the Effects

question 16

True/False

Test markets can only be used to test the effects of price changes on sales.

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Definitions:

Risk Averse

A characteristic of individuals who prefer to avoid risk and would rather choose an option with a lower but more certain return than an option with a higher but uncertain return.

Von Neumann-Morgenstern

Pertains to a theorem used in expected utility theory, which provides an axiomatic basis for the selection of optimal choices under uncertainty.

Utility Function

An economic model that quantifies the satisfaction or happiness a consumer receives from consuming goods and services.

Expected Utility

A theory in economics that models how agents choose among risky alternatives to maximize their satisfaction.