Asked by karamjeet singh on Jun 23, 2024
Verified
Last month Laura saw the value of her stock portfolio rise by $20,000. This month she saw the value of her portfolio decline by $20,000. According to behavioral economics,
A) the positive utility Laura received from seeing her portfolio value rise was equal to the disutility she felt when its value declined.
B) Laura should not invest in stocks unless the utility she receives from gains is at least as great as the disutility she feels from losses.
C) the positive utility Laura received from seeing her portfolio value rise was greater than the disutility she felt when its value declined.
D) the positive utility Laura received from seeing her portfolio value rise was less than the disutility she felt when its value declined.
Behavioral Economics
A field of economics that studies how psychological, social, cognitive, and emotional factors influence economic decisions of individuals and institutions.
Stock Portfolio
A collection of stocks that an individual or institution holds, representing investments across one or more types of stock, sectors, or industries.
Positive Utility
The benefit or satisfaction gained from the consumption of goods or services that contribute to an individual's well-being and happiness.
- Grasp the concepts of prospect theory, including loss aversion and the framing effect on economic behavior.
- Recognize the effect of the availability heuristic on risk assessment and decision-making.
Verified Answer
DB
deann BookerJun 26, 2024
Final Answer :
D
Explanation :
According to behavioral economics, individuals often experience losses more intensely than gains. This concept is known as loss aversion. Therefore, the disutility Laura felt from her portfolio's decline is likely greater than the positive utility she received from its rise.
Learning Objectives
- Grasp the concepts of prospect theory, including loss aversion and the framing effect on economic behavior.
- Recognize the effect of the availability heuristic on risk assessment and decision-making.