Question

The psychological difference is greatest between

a) $80 and $100
b) $1 000 000 and $1 000 020
c) $1000 and $980
d) is the same for all of the above

Answer 1

The psychological difference is greatest between $1000 and $980.

Step-by-step explanation:

In this question, the psychological difference refers to how individuals perceive and evaluate outcomes relative to a reference point, such as the cost of a product. According to behavioral economists, people often think of gains and losses as percentages rather than actual savings. Therefore, the psychological difference would be greatest in the scenario where the price difference is a smaller percentage of the total cost.

In this case, option c) $1000 and $980 would have the greatest psychological difference since the price difference of $20 is a larger percentage of the total cost compared to the other options.

Therefore, the correct answer is c) $1000 and $980.