Question

You started an online business three weeks ago. Thus far, you have averaged 10 sales a...

You started an online business three weeks ago. Thus far, you have averaged 10 sales a day, which is 1 sale for every 5 hits. You are now considering giving up your day job and becoming a full-time online retailer. You have calculated the amount of income you can earn based on 10 sales a day and know that level of income would support you in a comfortable fashion. The belief that you will have 10 sales per day on average if this becomes your full-time occupation is based on which one of the following?

Question 8 options:

Mental accounting
Anchoring and adjustment
Law of small numbers
Bubble and crash theory
Confirmation bias

Homework Answers

Answer #1

Law of small numbers

Under this law the people tend to underestimate the variability due to small numbers involved. Here the belief is that the number of sales per day will be maintained and the deviation and risk of losing out on sales is ignored because the number considered is small.

Mental accounting is the tendency of people to separate the money into different accounts. Anchoring and adjustment is a technique in which a person uses a specific number as a starting point and adjust that information until an acceptable value is reached. Bubble and crashed theory refers to the expectation of a sudden increase and fall in the value of assets. Confirmation bias is the tendency to search for information in such a way that confirms ones preexisting bias.

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