Numerical answer
Four of the five sentences below, when arranged in the right order, form a coherent paragraph. Identify the one sentence that does NOT fit and key in its number as your answer.
1. Behavioural economists have shown that people often evaluate outcomes relative to a reference point rather than in absolute terms.
2. A pay cut, for instance, is experienced as a loss even if the resulting salary remains generous by objective standards.
3. This tendency, known as loss aversion, means that losses typically loom larger psychologically than equivalent gains.
4. Standard deviation is a statistical measure of how spread out a set of values is around the mean.
5. Loss aversion helps explain why investors often hold on to losing stocks too long, hoping to avoid realizing a loss.
1. Behavioural economists have shown that people often evaluate outcomes relative to a reference point rather than in absolute terms.
2. A pay cut, for instance, is experienced as a loss even if the resulting salary remains generous by objective standards.
3. This tendency, known as loss aversion, means that losses typically loom larger psychologically than equivalent gains.
4. Standard deviation is a statistical measure of how spread out a set of values is around the mean.
5. Loss aversion helps explain why investors often hold on to losing stocks too long, hoping to avoid realizing a loss.
Show answer and solution
Answer: 4
Sentences 1, 2, 3 and 5 together build a coherent explanation of loss aversion, from definition to example to application. Sentence 4, a generic statistical definition of standard deviation, has no connection to loss aversion and breaks the paragraph's unity.
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