Question

The traditional economic framework assumes that people make rational economic decisions, that is, that they act in ways that maximize their utilities. However, behavioral economists have found evidence that is inconsistent with economists’ rationality assumptions. Which of the following is an example of evidence of irrational behavior? (Note: Read carefully.) Some wine collectors decide not to sell their 20-year-old bottle of wine at the market price while refusing to buy another one at the same price. Some people are willing to drive an extra mile to save $20 on a $100 purchase but not to save $10 on the same purchase. A higher price generally decreases the quantity demanded of a commodity.

Answer 1

Answer: Some wine collectors decide not to sell their 20-year-old bottle of wine at the market price while refusing to buy another one at the same price.

Explanation:

If the wine collectors do not want to sell at the market price, this usually means that they place a higher value on their wine than the market is offering for it. This is rational and might hold water if they know something the market does not.

It is irrational however if they are offered a similar wine at the marker price and they do not buy it. A rationally minded person would have purchased the wine at the market price so that they can now have two wines that are valued above the market thereby presenting a chance to make profit.