Question

Barb and Ken purchased a house for $300,000 in 2005. When they needed to sell because of a job transfer in 2009, the house was appraised for $250,000 but they put it on the market for $300,000 anyway. The house is still on the market. Behavioral tendencies at work here may include:
A. representativeness and narrow framing.B. loss aversion and anchoring.C. familiarity bias and self attribution bias.D. overconfidence and representativeness.

Answer 1

Answer:

The answer is B. loss aversion and anchoring

Explanation:

Loss aversion is a theory that refers to the tendency of people to prefer avoiding losses in order to acquire equivalent gains. For instance, when someone prefers gaining $100 over losing $100. The reason behind this is because the pain of losing is twice as much as the pleasure of gaining.

Anchoring is the phenomenon of using an event or something as a point of reference when a comparison is being done.

From the scenario given above, we see that Barb and Ken are averse to losing $50,000 on the house they bought for $300,000. The point of reference for this comparison will be the $300,000 they paid for the house initially.

Answer 2

Answer:

B

Explanation:

On the basis of their actions in selling their house at $300,000 despite being use for years , their behavioral tendencies at work include loss aversion and anchoring.

Loss aversion is a psychology and decision taking theory where people try as much as possible to avoid making losses but make equivalent gain.

Anchoring is defined as a cognitive bias where the human being rely on an existing information as reference for decision making.