Up until three years ago, A.C. Dime opened an average of ten new retail stores a year. One of every ten new stores had to be closed within two years due to poor sales. This 90 percent success ratio was fairly steady for over 30 years. Starting three years ago, the firm has opened 40 new stores and every one had significant profits within six months. Management believes their recent success is not just a random event and that all future stores will be profitable. Thus, the managers have decided to open a minimum of 15 new stores each year. The managers are suffering from:
A) arbitrage limitations.
B) anchoring and adjustment.
C) aversion to ambiguity.
D) the clustering illusion.
E) myopic aversion.

Question

Quizplus · Accepted Answer

The managers are likely experiencing the clustering illusion, which is the tendency to see patterns in random events. They are interpreting the recent success of the new stores as a pattern that will continue, rather than considering it might be a statistical anomaly or due to specific circumstances that may not persist.

Up Until Three Years Ago, A