Question

Text questions Which of the following statements about people's behavior is wrong? Choose one: a. According to the prospect theroy theory, people evaluate business losses and benefits differently, even if the same amount is involved. b. Because market participants have different information, another party tries to convey the product's characteristics with a signal c. Because market participants have different information, one party tries to get the other person to provide certain useful information (screening) d. People are not always rational. e. People always don't care about fairness

Answer 1

Behavioral Economics refers to the study of psychology that relates to the economic decision making process of individuals and institutions. Behavioral economics is thus often related with normative economics.

In the given statements, statements (e) is wrong about people's behavior. This is so because, in behavioral economics, people do prefer fairness. Fairness in economics refers to equity, economic equality or equal treatment. For example, according to classical economics, wages are paid based on MRP, but in the real-world, the employees are paid higher than that. The concept of fairness mean that workers may judge their treatment compared to how they are treated compared to others in the workforce.

It is to be noted that some economists do argue that people do not care for fairness.

All the other statements given are correct.