Asked by Jeremy Quinonez on Jun 23, 2024
Verified
Huxley lost $100 in the stock market. According to behavioral economics research, how much of a gain would he have to experience to offset the feeling of loss and have no net change in utility?
A) $100
B) $250
C) $40
D) $150
Stock Market
A public market for buying and selling company stock and derivatives at an agreed price; it's a key indicator of economic health.
Behavioral Economics Research
The study of psychological, social, cognitive, and emotional factors on the economic decisions of individuals and institutions.
Net Change
refers to the difference in a financial instrument's closing price from one period to the next, indicating the level of price movement or volatility over time.
- Understand the explanation of human behavior towards risks and rewards through prospect theory.
Verified Answer
NH
Nathan HerreraJun 28, 2024
Final Answer :
B
Explanation :
According to behavioral economics, particularly the concept of loss aversion, people typically experience the pain of loss about twice as powerfully as the pleasure of a gain. Therefore, to offset a $100 loss, Huxley would need a gain of about $200. However, since the closest option provided is $250, that would be the correct choice to ensure no net change in utility.
Learning Objectives
- Understand the explanation of human behavior towards risks and rewards through prospect theory.