4

Set 3: Inferences (Advanced)

Explanation

Answer: B

PASSAGE

Behavioral economists have documented 'hyperbolic discounting'—our tendency to prefer smaller immediate rewards over larger delayed ones, even when delay is brief. This explains why people struggle to save for retirement despite knowing its importance. Standard economic models assuming consistent time preferences cannot account for this pattern, necessitating revised theories of rationality.

What does hyperbolic discounting suggest about conventional economic assumptions?

A. People always make rational long-term decisions.
B. Actual human decision-making may systematically deviate from assumed consistent preferences.✓ Correct
C. Retirement saving is easy for most people.
D. Standard economic models perfectly predict behavior.

Detailed Explanation

Standard models 'cannot account for this pattern' = actual behavior deviates from assumed consistency.

Key Evidence:

• "Standard economic models assuming consistent time preferences cannot account for this pattern"

Why others are wrong: A (People 'prefer smaller immediate rewards' irrationally.), C (People 'struggle to save.'), D (Models cannot account for the behavior.).

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