Set 5: Inferences (Intermediate)
Explanation
PASSAGE
Behavioral economists have found that losses loom larger than equivalent gains—a phenomenon called loss aversion. In experiments, people require approximately twice as much potential gain to take a risk as they would need to compensate for a potential loss of the same size.
What can be inferred about human decision-making?
Detailed Explanation
This question asks you to draw a logical conclusion from the text. 'Losses loom larger' + needing twice the gain = skew toward loss avoidance. A valid inference must be supported by evidence in the passage, even if not stated directly. Look for clues in the text that strongly suggest the answer. Avoid conclusions that require assumptions beyond what's written. Valid inferences are strongly supported by multiple pieces of evidence in the text. Be cautious of choices that go too far beyond what the passage actually states. The best inference is the one most directly supported by textual evidence.
Key Evidence:
• "losses loom larger"
• "require twice as much potential gain"
Why others are wrong: A (It affects risk-taking behavior.), B (Asymmetric: losses weighted more heavily.), C (This bias is irrational in economic terms.).