Which of the following examples are used as evidence favoring the bounded ration

Question

Which of the following examples are used as evidence favoring the bounded rationality assumption?

A.When purchasing electric appliances such as refrigerators, people sometimes buy the lowest-priced, energy-inefficient models even though the price savings often fail to compensate for higher future energy costs.

B.People who live in earthquake- or flood-prone regions commonly purchase insurance against these events.

C.When purchasing electric appliances such as refrigerators, people sometimes buy the highest-priced models with expensive and extravagant features.

D.All of the above.

Explanation / Answer

The bounded rationality states that a consumer's decision is bounded by

- Limited information they have

- Limited time frame

- Limitations of their cognitive capabilities

Only option (A) satisfies these preconditions. Such buyers think short-term (limited time frame), have limited information (on failure to compensate for future energy costs) and cognitive mindset limitation.

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