Single correct option
Paragraph: A recurring finding in behavioural economics is that people evaluate outcomes not in absolute terms but relative to a reference point — typically their current state or expectation. A pay rise that falls short of an anticipated, larger rise can register as a loss even though the person's income has, in absolute terms, increased. This reference dependence explains why announcements matter as much as outcomes: a company that first signals a large bonus and then delivers a smaller one often provokes more dissatisfaction than one that never raised expectations in the first place, even if the smaller bonus is objectively larger than nothing.
Which of the following best summarises the paragraph?
Which of the following best summarises the paragraph?
- A. Employees are never satisfied with any bonus regardless of its size.
- B. People judge outcomes against a reference point rather than in absolute terms, so an outcome smaller than what was expected can feel like a loss even if it is an objective gain.
- C. Companies should never announce bonuses in advance under any circumstances.
- D. Absolute income is the only factor that determines employee satisfaction.
Show answer and solution
Answer: (B) People judge outcomes against a reference point rather than in absolute terms, so an outcome smaller than what was expected can feel like a loss even if it is an objective gain.
The paragraph's point is precisely reference dependence: evaluation happens relative to expectation, not in absolute terms, so a smaller-than-expected gain can feel like a loss. Option D directly contradicts this; A and C overstate the paragraph's claims into universal rules it never makes.
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