Which of the following statements is true of prospect theory?
A) Consumers are not risk-averse.
B) Consumers are willing to buy a product even when the decision involves losses.
C) When an item is exchanged, sellers ask for a much lower price than expected by the buyers.
D) As part of their defense mechanism, sellers respond to self-threat by diminishing the value of a self-associated object.
E) Consumers have strong negative reactions to price increases.

Question

Quizplus · Accepted Answer

Prospect theory states that consumers have a stronger negative reaction to losses than positive reaction to gains. This means that consumers are more sensitive and reactive to price increases than price decreases. Therefore, consumers have strong negative reactions to price increases which is supported by prospect theory.

Which of the Following Statements Is True of Prospect Theory