Asked by Santos Morido on May 30, 2024
Verified
Assume that odds of a new computer requiring any type of service in the first two years are less than 1 in 10.000,and the average cost of any computer service call is only $50.However,Karen pays $200 for a two-year service contract on her new computer.She explains that her peace of mind is well worth the cost of the contract.What is Karen using to make her decision to purchase the service agreement in this case
A) noncompensatory factors
B) subjective probability
C) expected value
D) subjective utility
Subjective Utility
An individual's perceived value or satisfaction obtained from choosing a particular action, often used in economic and psychological models of decision making.
Expected Value
Is the predicted value of a variable, calculated as the sum of all possible values each multiplied by the probability of its occurrence.
Service Contract
A legally binding agreement between two or more parties where one agrees to provide a specified service to the other for a payment.
- Evaluate the contribution of subjective utility and predicted value to the decision-making in individuals.
Verified Answer
ZK
Zybrea KnightJun 06, 2024
Final Answer :
D
Explanation :
Karen is using subjective utility to make her decision, as she values the peace of mind the service contract provides more than the monetary cost of the contract itself. This decision is based on personal preference rather than objective cost-benefit analysis.
Learning Objectives
- Evaluate the contribution of subjective utility and predicted value to the decision-making in individuals.