Single correct option
Behavioural economists have long noted that people tend to weigh potential losses more heavily than equivalent gains, a phenomenon known as loss aversion. This asymmetry shapes decisions far beyond the laboratory: employees are reluctant to switch to pension plans with better expected returns if doing so entails a visible short-term reduction in take-home pay, and negotiators frequently reject deals that leave them slightly worse off than a reference point even when the deal is objectively favourable compared to the alternative of no deal at all. Recognising this bias has become central to the design of 'nudges' — policies that reframe choices to work with, rather than against, this deep-seated human tendency.
Which of the following best summarises the paragraph?
Which of the following best summarises the paragraph?
- A. Loss aversion proves that people are fundamentally irrational and resistant to any policy intervention.
- B. Because people weigh losses more heavily than equivalent gains, this bias shapes real-world financial and negotiation decisions, and policymakers now design 'nudges' that account for it.
- C. Pension plans with better returns are always rejected by employees regardless of how they are framed.
- D. Nudges eliminate loss aversion by forcing people to accept objectively better outcomes.
Show answer and solution
Answer: (B) Because people weigh losses more heavily than equivalent gains, this bias shapes real-world financial and negotiation decisions, and policymakers now design 'nudges' that account for it.
The paragraph defines loss aversion, gives two real-world examples (pensions, negotiation), and ends by linking the bias to the design of 'nudges'. Option B captures all three elements accurately; the others either overstate (A, D) or misstate (C, which says 'always') the paragraph's claims.
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