MANGERIAL ECONOMICS W/MIND TAP
5th Edition
ISBN: 9781337607988
Author: FROEB
Publisher: CENGAGE L
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Chapter 12, Problem 1MC
To determine
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When the promotion makes the
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11:44 Fri Apr 4
Would+You+Take+the+Bird+in+the+Hand
Would You Take the Bird in the Hand, or a 75% Chance at
the Two in the Bush?
BY VIRGINIA POSTREL
WOULD you rather have $1,000 for sure or a 90 percent chance
of $5,000? A guaranteed $1,000 or a 75 percent chance of
$4,000?
In economic theory, questions like these have no right or wrong
answers. Even if a gamble is mathematically more valuable a 75
percent chance of $4,000 has an expected value of $3,000, for
instance someone may still prefer a sure thing.
People have different tastes for risk, just as they have different
tastes for ice cream or paint colors. The same is true for waiting:
Would you rather have $400 now or $100 every year for 10
years? How about $3,400 this month or $3,800 next month?
Different people will answer differently.
Economists generally accept those differences without further
explanation, while decision researchers tend to focus on average
behavior.
In decision research, individual differences "are regarded…
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