Asked by Ashley Melton on Jun 19, 2024
Verified
You recently overheard your boss telling someone that if he'd actually crunched some numbers and done some analysis instead of just going with his instincts that he never would have opened the new store in Centre City. Which one of the following caused your boss to make a bad decision?
A) Regret aversion.
B) Endowment effect.
C) Money illusion.
D) Affect heuristic.
E) Representativeness heuristic.
Affect Heuristic
A mental shortcut used in decision making and judgement that involves relying on emotions and feelings.
Regret Aversion
A theory in behavioral economics that describes the emotional reaction people experience after realizing they have made an error in judgment, leading them to avoid making decisions.
Money Illusion
Money illusion is a cognitive bias where people misjudge the value of money in terms of its purchasing power, typically neglecting the effects of inflation or deflation.
- Assess the impact of excessive confidence and various biases on the decision-making processes of managers.
- Analyze the impact of frame dependence on the formation and influence of financial decisions and perceptions.
Verified Answer
AA
Aleesha ArmstrongJun 19, 2024
Final Answer :
D
Explanation :
The affect heuristic is when decisions are influenced by emotions rather than by a thorough analysis of the available information. In this case, your boss made a decision based on instinct (an emotional response) rather than conducting a detailed analysis, which led to a poor decision.
Learning Objectives
- Assess the impact of excessive confidence and various biases on the decision-making processes of managers.
- Analyze the impact of frame dependence on the formation and influence of financial decisions and perceptions.