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If a decision maker prioritizes a lower payoff for a specific utility, what kind of decision-making preference is being exhibited?

a. Risk-averse
b. Risk-seeking
c. Minimax regret
d. Expected value

User Uri Goren
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Final answer:

A decision maker who prioritizes lower payoff for specific utility is exhibiting a risk-averse preference. This reflects a behavior favoring certainty over potential higher but uncertain rewards, aligned with principles of marginal utility and economic decision-making.

Step-by-step explanation:

If a decision maker prioritizes a lower payoff for a specific utility, the kind of decision-making preference being exhibited is risk-averse. This term describes a preference for certainty over uncertainty, even if the certain option might result in a lower payoff. In the context of marginal utility, most people look for a utility-maximizing combination of choices by comparing the tradeoffs of consuming different amounts of goods. Therefore, if they exhibit a risk-averse behavior, they are likely to select options that yield a more certain but potentially lower utility to avoid potential losses.

In collective decision-making, a bias toward the status quo may arise, which suggests a natural tendency to avoid changes and maintain current conditions. This can be linked to risk aversion as well. Additionally, rational individuals consider both the benefits and costs of their economic decisions and tradeoffs, choosing options where perceived benefits exceed the perceived costs. The law of diminishing marginal utility informs us that as a person receives more of a specific good, the additional gains tend to decrease. Finally, because sunk costs cannot be recovered, they should not influence current decisions.

User Plamen Zdravkov
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