The Difference Between $15 and $10 Seems Greater Than the Difference

question 4

Multiple Choice

The difference between $15 and $10 seems greater than the difference between $125 and $120.This is an example of:

• A) base-rate neglect.
• B) framing effects.
• C) subjective probability.
• D) subjective utility.

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Definitions:

Face Value

The nominal or original value printed on a security or financial instrument, such as a bond or stock certificate.

Lapse Policy

A situation where an insurance policy becomes inactive because premiums have not been paid.

Insurance Policy

A contract between an individual or entity and an insurance company, detailing the terms and agreements in which the insurer agrees to pay the insured for specific loss, damage, illness, or death in return for payment of a premium.

Interim Coverage

Temporary insurance protection provided between the application and the actual issuance of a policy.