Chapter 12

What key conclusion does the text present about people's preferences in choice situations?

• • A) They are always stable and predictable

• • B) They don't have pre-existing stable values

• • C) They only change in financial decisions

• • D) They are completely random

What challenge does the text suggest arises from the unstable nature of preferences?

• • A) How to predict market trends

• • B) How to define and measure preferences

• • C) How to make better decisions

• • D) How to develop economic models

Which phenomena does the text suggest Prospect Theory was developed to explain?

• • A) Market fluctuations

• • B) Consumer behavior

• • C) Phenomena that SEU couldn't account for

• • D) Mathematical anomalies

The text describes Prospect Theory as a "descriptive" rather than "normative" theory. What does this distinction mean?

• • A) It describes what people actually do rather than what they should do

• • B) It describes mathematical formulas rather than verbal explanations

• • C) It describes past events rather than future predictions

• • D) It describes individual rather than group behavior

What are the two main phases of the choice process identified in Prospect Theory?

• • A) Gain phase and loss phase

• • B) Risk phase and reward phase

• • C) Editing phase and evaluation phase

• • D) Analysis phase and decision phase

What is the main purpose of the reference point mentioned in the editing phase?

• • A) To measure absolute values

• • B) To eliminate risk

• • C) To calculate probability

• • D) To classify outcomes as gains or losses

Based on the context of the following sentence, what is the meaning of the word elicit?

"If different procedures for eliciting preferences elicit different choices, then how can preferences be defined and how should they be measured?"

• A. To predict

• B. To cause

• C. To prevent

• D. To ignore