Assume that an analyst at a leading business daily observes an increase in productivity across industries which announced healthy annual bonus for their employees.This leads him to conclude that productivity is directly related to the incentive scheme followed by companies.The analyst however ignored the increase in capital per worker ratio and other technological developments in these companies which also affected productivity.This error in reasoning is related to:
A)bounded rationality.
B)selection bias.
C)representative heuristics.
D)availability heuristics.

Question

Quizplus · Accepted Answer

The error in reasoning described in the scenario is related to selection bias, which occurs when the sample that is being analyzed is not representative of the entire population, leading to incorrect conclusions. In this case, the analyst only considered one factor (incentive scheme) and ignored other important factors (capital per worker ratio and technological developments) that could also have contributed to the increase in productivity. Therefore, the conclusion that productivity is directly related to the incentive scheme is incorrect due to selection bias.

Assume That an Analyst at a Leading Business Daily Observes