For each of the following scenarios explain how the underlying behavior cannot be explained through standard...

For each of the following scenarios explain how the underlying behavior cannot be explained through standard cost-benefit analysis.

(a) During blood donation drives it has been observed that donation actually falls when very small monetary payments are made to people who donate blood compared to when no monetary payments are made.

(b) In experiments it has been observed that when cookies in limited supply are offered for free to people working in an office each person on average takes very few cookies. However in a similar situation when the same cookies are offered at a very low (below market) price, people on average take more cookies compared to when it was offered for free.

(c) Surveys commonly reveal that people would find it disappointing if friends were to give them cash, instead of a gift, as a birthday present.

Expert Solution

A.

On the basis of cost-benefit analysis, people should come for the donations as they are being compensated. But, people do not like it and they value their blood to be more than what is being paid to them. They come to donate blood to save some lives ans with money they feel that they are selling it. So, they do not come for paid donation of blood as it is against their values and sentiments to help others. It is a behavioral aspect of the people.

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B.

As per the cost-benefit analysis, when offered for free, they should take more and vice versa. But, people do not do it as they get sensitized regarding the cost incurred by the manufacturer and they show respect towards them by not pouncing on it when it is free. In contrast, when it comes at a nominal price, then they do not fel any guilt and buy it more to get the benefit of discounts. It shows behavioral tendencies of consumers.

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C.

People should like it as per the Cost-benefit analysis, as they get cash. But, it reflects their friends' perception towards them and it is inferior perception. It makes people dislike when cash is given. When gifts are given, then they feel better as they are treated on equal terms. It makes people dislike when cash is given as a birthday present.

Rahul Sunny answered 2 years ago

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