One type of systematic error arises because people tend to think of benefits in percentage terms rather than in absolute dollar amounts. As an example, Samir is willing to drive 20 minutes out of his way to save $4 on a grocery item that costs $10 at a local market. But he is unwilling to drive 20 minutes out of his way to save $10 on a laptop that costs $400 at a local store. A. In percentage terms, how big is the savings on the grocery item? On the laptop? B. In absolute terms, how big is the savings on the grocery item? On the laptop? C. If Samir is willing to sacrifice 20 minutes of his time to save $4 in one case, shouldn't he also be willing to sacrifice 20 minutes of his time to save $10?

Question

Cristina Morales

Business

28 January, 19:21

One type of systematic error arises because people tend to think of benefits in percentage terms rather than in absolute dollar amounts. As an example, Samir is willing to drive 20 minutes out of his way to save $4 on a grocery item that costs $10 at a local market. But he is unwilling to drive 20 minutes out of his way to save $10 on a laptop that costs $400 at a local store. A. In percentage terms, how big is the savings on the grocery item? On the laptop? B. In absolute terms, how big is the savings on the grocery item? On the laptop? C. If Samir is willing to sacrifice 20 minutes of his time to save $4 in one case, shouldn't he also be willing to sacrifice 20 minutes of his time to save $10?

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Answers (1)

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Gasby · Answer 1

A. Grocery = 40%, Laptop = 5%

B. Grocery = $4, Laptop = $10

C. Yes

Explanation:

A. The percentage savings for grocery

= $4/$10 x 100 = 40%

The percentage savings for laptop

=$20/$400 x 100 = 5%

C. Considering the value of the saving, Samir should be more willing to sacrifice 20 minutes of his time to save to save $10 because a $20 dollar savings has higher economic value.