Judgment in Managerial Decision Making 8th Edition by Max H. Bazerman – Test Bank

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 Sample Questions Posted Below

 

 

 

 

Multiple choice

 

  1. How can a sure loss be presented in a less unattractive way?
    1. Framing the loss in pseudocertain terms.
    2. Framing the sure loss in probability terms, having a 100% probability.
    3. Emphasizing the low degree of risk.
    4. None of the above.

Ans: d.

 

  1. Daniel and Jeremy are brothers. They have found out in advance about what their parents are giving them for Christmas, and have agreed to exchange each other’s gifts. When should the exchange be made, in order for the two brothers to be the most satisfied with it?
    1. Before opening the presents.
    2. Right after opening the presents.
    3. A few weeks after receiving the presents, after getting tired of what they received.
    4. Answers a and b have equal likelihoods of creating satisfaction.

 

Ans: a.

Response: p. 93

 

 

  1. What explanation does the book provide for the fact that people are loss-averse, but still accept the sure loss of paying insurance?
    1. The vividness of the possibility of losing a big amount of money if they are uninsured leads people to overestimate their risk.
    2. The special value pseudocertainty has.
    3. Social norms that favor having insurance.
    4. All of the above.

Ans: d

Response: p. 90-91

 

  1. A product’s transactional utility is contingent upon:
    1. The product’s acquisition utility.
    2. A reference price.
    3. The level of risk associated with the product.
    4. All of the above.

 

Ans: b.

Response: p. 92

 

 

  1. A rational valuation of an asset is based on:
    1. What the asset is currently worth on the market.
    2. The time that had passed since purchasing the asset, including depreciation.
    3. What the asset cost at the time it was purchased.
    4. The transaction utility of the purchase.

 

Ans: a

Response: p. 95

 

 

  1. A software company is looking to recruit a new programmer. There are two candidates for the position. The candidates’ Grade Point Averages are given, along with the number of programs each of them has written.
  2. Candidate X has a GPA of 4.0. His experience consists of writing 10 programs.
  3. Candidate Y has a GPA of 3.2. His experience consists of writing 70 programs.

According to the evaluability hypothesis, which of the candidates will be preferred in case they are evaluated separately, and why?

  1. Candidate X, because GPA is harder to evaluate than experience.
  2. Candidate Y, because GPA is easier to evaluate than experience.
  3. Candidate X, because experience is harder to evaluate than GPA.
  4. Candidate Y, because experience is easier to evaluate than GPA.

Ans: c

Response: p. 99-100

 

  1. A drug company has developed a vaccine that protects against Hepatitis C and Hepatitis B, but not against Hepatitis A. Which of the following is the recommended way to present this new pill?
  2. 67% protection from all types of Hepatitis.
  3. Protects you from 2 out of 3 types of Hepatitis.
  4. Full protection against Hepatitis B and Hepatitis C.
  5. Leaves you at only 33% risk of Hepatitis.

Answer: c

Response: p. 88-89

 

  1. A firm has exceeded its revenue forecast for the year, and wishes to share some of the surplus with its employees. Which of the following schemes is likely to generate higher levels of satisfaction from the employees?
    1. Giving bi-monthly bonuses, with the each bonus slightly smaller than the previous one.
    2. Giving bi-monthly bonuses, with each bonus slightly larger than the previous one.
    3. Giving bi-monthly bonuses of equal amounts.
    4. Giving one big bonus at the beginning of the year.

Ans: b

Response: p. 98

 

True / False

 

  1. Since losses loom larger than gains, a big loss upsets us more than two smaller losses of the same total amount.

Ans: False

Response: p. 96

 

  1. In choices that involve uncertainty, our judgments are affected not only by the framing of the choice in terms of the level risk, but also by the framing of the choice in terms of gains or losses.

Ans: True

Response: p. 90-91

 

  1. In negotiations, the endowment effect creates a bias primarily in seller’s evaluations.

Ans: True

Response: p. 93-94

 

  1. The acquisition utility derived from buying a good is a function of the price paid for the good and its objective value.

 

Ans: False

Response: p. 92

 

 

Fill-in-the-blank

 

  1. The certainty effect posits that a reduction of the probability of an outcome will be more meaningful when the outcome was initially _______ than when it was __________ .

Ans: certain; probable

Response: p. 89

 

 

Short answer

 

  1. The chapter identifies three steps of making a risky choice free of the biasing effect of reference points. What are these three steps?

Ans: 1. Identifying one’s reference point. 2. Considering whether other reference points exist and whether they are as reasonable as the first one. 3. Thinking about the decision from multiple perspectives and examining any contradictions that emerge.

Response: p. 101

 

  1. Richard Thaler distinguished between a product’s acquisition utility and transactional utility. On which of these two types does the product’s seller has control, and how?

 

Ans: a seller has control over the product’s transactional utility, by attaching a high reference price to the product, and selling it at a lower price, thus increasing the transactional utility the buyer gets from buying the product.

 

Response: p. 92

 

 

  1. A credit card company wants to market a new scheme for its clients, offering them 5% of their yearly spending as a cash gift at the end of the year. How should the company refer to this rebate, and why?

 

Ans: the company should refer to the rebate as bonus. The word bonus is associated with spending, as opposed to words like “rebate”, which are associated with saving.

 

Response: p. 96-97

 

 

  1. What accounts for the high rate of auctions on eBay that fail to reach a sale?

 

Ans: the endowment effect causes sellers’ reservation prices to be higher than the highest bids.

 

Response: p. 93

 

 

 

Essay

 

  1. A firm has exceeded its revenue forecast for the year, and wishes to share some of the surplus with its employees. Outline the bonus scheme that is likely to generate higher levels of satisfaction from the employees, and explain why.

 

Ans: giving out multiple bonuses of small amounts will be better than giving one big bonus of the same amount as all small ones combined. This is because people have mental accounts that are sensitive to changes in their current situation. Therefore, multiple increases in the regular income are more enjoyable than one big increase.

 

Response: p. 96

 

 

  1. A city councilman wants to allocate funds for a program to highlight the city’s historical heritage. The mayor is opposing this plan, but has agreed to bring it for vote at the next city council meeting. How should the mayor present this issue at the meeting, in order to reduce the likelihood of its approval by the city council?

Ans: the mayor should introduce the issue as a choice between various issues for which funds should be allocated. When assessing options together, people tend to prefer causes directly relevant to them. However, when assessing options separately, people perceive affectively arousing causes as more important.

Response: p. 98-100

 

  1. What is a possible explanation for the observed preference reversal of voters between choices that are evaluated separately and choices that are evaluated simultaneously?

Ans:       1) The want/should explanation: the “want” option is the option that people want and appeals to the affective system. It is valued more highly in separate evaluations. The “should” option, the more logical and reasoned one, which is what people think they should choose, is valuated more highly in joint evaluation.

2) The evaluability hypothesis states that preference reversals between separate vs. joint evaluations are driven by differences in our ability to evaluate different attributes of the options. When two options require a tradeoff between a hard-to-evaluate attribute and an easy-to-evaluate attribute, the hard-to-evaluate attribute will have less impact in separate evaluations, but will have a significant weight as a comparison measure in joint evaluations.

Response: p. 99-100

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