Final answer:
The psychological difference is smallest between $1,000,000 and $1,010,000 due to the principle of diminishing marginal utility in behavioral economics. This concept suggests that as wealth increases, the additional satisfaction gained from an extra dollar decreases, influencing the perceived value of that money.
Step-by-step explanation:
The question relates to behavioral economics, specifically the concept of mental accounting and how individuals perceive the value of money differently based on context. While economists may say that money is fungible, meaning that all monetary units are interchangeable and have equal value, behavioral economics suggests that people often think of money in relative terms.
When comparing the psychological difference between $0 and $10,000, $1,000 and $11,000, and $1,000,000 and $1,010,000, one must consider the concept of diminishing marginal utility in behavioral economics. This principle suggests that the utility or satisfaction derived from each additional dollar decreases as a person has more money. Therefore, the psychological difference is smallest between $1,000,000 and $1,010,000 (option c), as the relative increase is the smallest percentage-wise compared to the other options. The psychological impact of gaining or losing $10,000 when you already have $1,000,000 is less significant than when the amounts are lower.
To summarize, people evaluate monetary gains and losses not just by absolute values but in relation to a reference point, which often leads to a perceived value of money that differs from its actual value.