In the past, Jan's Dance Studio charged a $5 late fee if monthly tuition payments were received after the due date. A behavioral economist suggested raising monthly tuition by $5 and giving a $5 discount for on-time payments. To the owner's great surprise, the number of late payments decreased dramatically after she followed this advice. What psychological factor might explain this phenomenon?
A) altruism
B) sunk cost fallacy
C) framing bias
D) overconfidence

Question

Quizplus · Accepted Answer

The decrease in late payments can be attributed to framing bias, where the way information is presented (as a potential gain rather than a loss) influences decision-making. In this case, framing the timely payment as a way to receive a discount (gain) rather than avoid a late fee (loss) motivated more people to pay on time.

In the Past, Jan's Dance Studio Charged a $5 Late