1. What is the main difference between a rational and an irrational decision maker?(2 points)

2. In relation to decision making, what is a framing effect?(2 points)

3. Does your class data show evidence for rational or irrational decision making? Explain your answer.(2 points)

4. Last week you and a friend went to an electronics store. You purchased a television for $600 and your friend bought a video game for $40. Today you saw in the newspaper that the electronics store was having a huge sale and your television is now $580 and your friend’s game is $20. You decide it is not worth it for you to go and get a price change, but you call your friend because you cannot think of a reason why he/she would not want to go and get a price adjustment. The potential savings for you and your friend is exactly the same so why might you assume your friend would want a price adjustment when you did not?(4 points)

5. You own a restaurant and decide that all your meals will cost $11 before 5pm and $12 after 5pm. You can advertise this by saying that there will be a discount on meals served before 5pm or you can say there will be a surcharge on meals served after 5pm. How should you advertise your prices? Explain your answer. (4 points)

6. Making decisions can be taxing, so people often rely on heuristics. What is a heuristic? Identify and describe one heuristic. Identify a situation when the heuristic you identified would lead you to an erroneous decision. (6 points)

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