Assignment #2 Chapter 5, 6, 7 & 8 AA3306
5.1 The chapter identifies three steps of making a risky choice free of the biasing effect of reference points. What are these three steps? When facing a risky decision, one should identify a reference point. Next one should examine any other possible reference points and whether they are plausible. If they seem likely, analyze the decision from various views and pinpoint any contradictions found. Lastly, the individual should be enabled to make a decision with better awareness of the frames in which the problem could have been presented.
5.2 Richard Thaler distinguished between a product’s acquisition utility and transactional utility. On which of these two types does the product’s seller has control, and how? While acquisition utility represents for the joy from receiving a product or service, transaction utility represent the satisfaction individuals get from the product or service itself. Transaction utility relies on comparing of products actual costs with reference to different costs, for example, the sales cost. The seller has control over transactional utility.
5.3 A credit card company wants to market a new scheme for its clients, offering them 5% of their yearly spending as a cash gift at the end of the year. How should the company refer to this rebate, and why?
According to research conducted by Nicholas Epley, Dennis Mak, and Lorraine Idson the framing of a government stimulus package in 2001, data suggest that people associate “bonus” with spending and “rebate” with saving. Therefore the scheme should be referred to as a “bonus” and not as a “rebate”
5.3 A firm has exceeded its revenue forecast for the year, and wishes to share some of the surplus with its employees. Outline the bonus scheme that is likely to generate higher levels of satisfaction from the employees, and explain why?
As a consequence of the budget surplus, the incentive system would be "bonus income" and would gratify workers by increasing their bottom line towards the end of the year, when the majority of families are most in need.
5.4 What is a possible explanation for the observed preference reversal of voters between choices that are evaluated separately and choices that are evaluated simultaneously?
Bazerman, Tenbrunsel, and Wade-Benzoni’s (1998) want/should explanation views a tension between what an individual wants to do versus what the individual thinks he or she should do. Consistent with the affect heuristic (Slovic et al., 2002), Bazerman et al. (1998) essentially argue that the more affectively arousing option, or the “want” option, will be valued more highly in separate evaluations, while the more logical and reasoned option, or the “should” option, will
