You Explain to Your Friend Haslina,who Runs a Catering Service

question 193

Multiple Choice

You explain to your friend Haslina,who runs a catering service called "Meals in a Zip," about an economic theory which asserts that consumers will purchase less of a product at higher prices than they will at lower prices.She contends that the theory is incorrect because over the past two years she has raised the price of her catered meals and yet has seen a brisk increase in sales.How would you respond to Haslina?

• A)Haslina is right; she has evidence to back her claim.The theory must be erroneous.
• B)I will explain to her that she is making the error of reverse causality: it is the increase in demand that has enabled her to raise her prices.
• C)I will explain to her that there are some omitted variables that have contributed to an increase in her sales such as changes in income.
• D)Haslina is making the mistake of assuming that correlation implies causation.

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Definitions:

Confirmation Bias

The inclination to look for, interpret, prioritize, and remember information in a manner that validates one's existing beliefs or assumptions.

Availability Heuristic

A fast-track cognitive process that uses the earliest examples coming to mind for a person when evaluating a unique topic, concept, practice, or choice.

Gambler's Fallacy

The inaccurate belief that when something is happening more frequently than is typical during a particular time, it will subsequently happen less frequently, or the other way around.

Maladaptiveness

A trait or behavior that is counterproductive to an individual's well-being or ability to meet demands of the environment.