Increased uncertainty and lack of understanding of probability to make decisions

A) strengthen the case for rules of thumb.
B) can lead to strong biases that prevent optimal decisions.
C) do not interfere in the calculation of expected utility.
D) cause consumers to understate the probability of an event.

Question

Deanna Baronville · Accepted Answer

Final Answer : B, Explanation :  Increased uncertainty and lack of understanding of probability can lead to strong biases such as overestimating the probability of rare events or underestimating the probability of common events. These biases can prevent individuals from making optimal decisions. Rules of thumb (A) may be useful in some situations, but they are not always reliable. The calculation of expected utility may be affected by uncertainty and lack of understanding of probability (C), but it does not necessarily interfere with it. Finally, option D is incorrect as consumers are more likely to overstate the probability of an event in response to uncertainty.

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