Question

For the following scenario, please choose the phenomena that best describes the scenario.

Our university cafe owners decide to encourage all its customers to use less paper cups in an effort to reduce waste. They feel that the customers may get upset if they started to charge for the use of paper cups. Up until now, the customers get the paper cups free of charge and they would expect the paper cups to be free. Instead, the owners gradually increase the prices of their coffee by an average of 25p per customer and give people who bring their own reusable cups a 25p discount. The current customers have no problem with this arrangement.

Select one:

a. Anchoring effect.

b. Sunk cost fallacy.

c. Failure to consider opportunity costs.

d. Loss aversion.

e. Decoy effect.

Answer 1

The correct answer is d. Loss aversion

Explanation: the cafe owner used the method of loss aversion in order to change the preferences of the customer.

​​​​Loss aversion is a method in which a consumer prefer those items which gives him benefits and avoid loss of those benefits.

In the current example, cafe owner allowed a discount of 25p to te customer who brought their own Resusabe glass, and charged those consumers who didn't bring glass along with them. Earlier the glass was free so nobody cared to bring a reusable glasss with them but now when there is a discount (benefit) customer have no problem in bringing the glass because it gives them benefits and avoid being charged 25p for a new cup.

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