Reference prices at Nuvana Electronics

Read the extracts and answer the questions that follow.

Text A — Consumer choice

1. Nuvana sells wireless headphones online. Some customers saw only the current price, while others first saw a much higher reference price. The products and current price were identical. The higher reference price increased purchases, although rival retailers offered comparable headphones more cheaply. This may indicate anchoring bias.

2. Consumer groups argue that customers have limited time to compare technical specifications and may follow a rule of thumb such as choosing the middle-priced product. Nuvana responds that customers remain free to compare every alternative.

Text B — Nuvana's objective

1. Nuvana's managers receive bonuses for increasing sales and market share. They intend to use introductory offers to establish the brand, even if current profit falls. Shareholders question whether this objective is consistent with long-run commercial success.

2. The consumer authority is considering requiring retailers to provide evidence that advertised reference prices were previously charged.

Table 1 is shown below.

Results of the reference-price trial

Table 2 is shown below.

Financial information for the high-reference-price group.

Treatment choices at Bellara Clinics

Read the extracts and answer the questions that follow.

Text A — Presentation of medical risks

1. Bellara Clinics tested two descriptions of the same treatment. One described its success rate; the other described its failure rate. Although the probabilities were equivalent, acceptance differed. Researchers identified framing bias.

2. Patients often have little time and limited medical knowledge. Lengthy disclosures may therefore add to information overload rather than produce fully informed utility maximization.

Text B — Active selection

1. The health authority proposes a mandated choice: patients must actively accept or reject treatment after receiving a short standardized explanation. No option is preselected or removed.

2. Critics argue that some patients prefer doctors to make recommendations. Bellara supports the proposal but is also concerned about administrative costs.

Table 1 — Treatment-framing trial

Treatment choices under two equivalent descriptions of the same treatment.

Table 2 — Choices under the mandated-choice pilot

Choices and treatment costs in the mandated-choice pilot.

Automatic renewal at Vistara Streaming

Read the extracts and answer the questions that follow.

Text A — Subscription decisions

1. Vistara offers a free trial that automatically becomes a paid subscription unless cancelled. Many users report intending to cancel but postponing the task. This may reflect bounded self-control.

2. Cancellation requires several online steps. Vistara argues that all conditions are disclosed, but consumer groups state that users have bounded rationality and may not read a lengthy contract.

Text B — Business strategy

1. Vistara is rapidly entering foreign markets. Managers currently prioritize growth maximization, measured through subscribers and sales, rather than the greatest attainable short-run profit.

2. The regulator proposes a reminder 48 hours before payment and a one-click cancellation link. Vistara predicts that this will reduce renewals and increase administration costs.

Table 1 — Renewal trial

For Table 1, assume that users were randomly allocated to otherwise comparable groups that differed only in whether they received the reminder. Neither group had the proposed one-click cancellation link.

Renewal outcomes for 1,000 trial users in each group.

Table 2 — Vistara's expansion

Table 1: Renewal trial. Users were randomly allocated to otherwise comparable groups; neither group had the proposed one-click cancellation link.

Drink choices in Marindi schools

Read the extracts and answer the questions that follow.

Text A — Cafeteria policy

1. Marindi's education ministry tested cafeteria arrangements. Under unrestricted choice, water and high-sugar drinks were available. Under restricted choice, high-sugar drinks were removed, while water and unsweetened drinks remained.

2. Supporters argue that restriction reduces harmful impulsive choices and information overload. Opponents state that it limits freedom and ignores differences in preferences.

Text B — The cafeteria operator

1. Freshway operates the cafeterias. It has adopted corporate social responsibility by reducing sugar and packaging waste, even though high-sugar drinks previously produced a higher contribution per unit.

2. Freshway expects healthier menus to improve its reputation and contract-renewal prospects. The ministry is considering whether a water-at-eye-level nudge would be preferable to restriction.

Table 1 — Drink choices

Drink selections under two cafeteria arrangements.

Table 2 — Contribution per drink

Contribution per drink sold by Freshway.

Emergency saving through the Kopa app

Read the extracts and answer the questions that follow.

Text A — Household saving

1. Many Kopa users say they want emergency savings but spend unexpected income immediately. The app tested messages comparing a user's saving with that of similar households. Such messages are a consumer nudge because users remain free to save any amount.

2. Some users may follow others as a rule of thumb rather than calculate the utility from present and future consumption. Low-income households argue that insufficient income, rather than inattention, limits their saving.

Text B — Kopa's objective

1. Kopa's managers seek acceptable profit, stable employment and manageable workloads rather than the highest possible profit. Its stated objective is satisficing.

2. A bank proposes paying Kopa for each user who opens a savings account. Consumer groups fear that the app's choice architecture could then serve the bank rather than users.

Table 1 — Social-comparison trial

Social-comparison trial outcomes for Kopa users.

Table 2 — Kopa's annual performance targets

Kopa's annual performance against satisficing targets.

Fairly traded coffee in Oranta

Read the extracts and answer the questions that follow.

Text A — Consumer motivations

1. Oranta Coffee introduced beans certified as paying farmers higher wages. Some consumers paid more despite saying that taste and quality were unchanged. Researchers suggested bounded selfishness, since fairness and concern for producers affected choice.

2. Other consumers doubted the certification and lacked information about supply chains. A recent documentary about poor working conditions also increased demand for certified coffee, possibly because of availability bias.

Text B — Producer objectives

1. Oranta accepted higher input costs as part of its corporate social responsibility policy. Managers believe customer loyalty will eventually increase profit.

2. A rival argues that Oranta should pursue profit maximization and use the cheapest legal inputs. Regulators are considering standardized certification labels.

Table 1 — Consumer survey

Consumer survey of coffee choices and prices in Oranta.

Table 2 — Monthly outcomes by sourcing method

Monthly revenue and total cost by coffee sourcing method in Oranta.

Preselected airline add-ons at Aeroza

Read the extracts and answer the questions that follow.

Text A — Booking design

1. Aeroza's booking page preselects travel insurance and priority boarding. Customers can remove either item. This is a default choice, and accepting the preset package requires no action.

2. Many passengers complete bookings quickly on mobile phones. Consumer groups argue that limited attention and complicated wording create bounded rationality. Aeroza says every price is displayed before payment.

Text B — Management objectives

1. Aeroza aims to increase passenger numbers and routes. Managers describe this as growth maximization, even though rapid expansion has increased training and maintenance costs.

2. The regulator proposes that no add-on be preselected and that passengers make an active choice about insurance.

Table 1 — Add-on trial

Table 1: results of the airline insurance add-on trial.

Table 2 — Expansion data

Aeroza expansion data for two years.

Risk information for Norvia vaccines

Read the extracts and answer the questions that follow.

Text A — Perceptions of risk

1. After intense reporting of a rare side effect, vaccine bookings fell. Officials argued that availability bias caused people to overestimate events that were vivid and easy to recall.

2. The health ministry introduced a balanced factsheet showing both the probability of protection and the probability of side effects. Some citizens found the statistics difficult to interpret.

Text B — The producer

1. Meditex manufactures the vaccine. Managers seek an acceptable return while maintaining spare capacity for emergencies. This reflects satisficing rather than maximizing current profit.

2. Meditex supports the factsheet but opposes a proposed ban on sensational advertisements by private clinics, arguing that existing consumer information is sufficient.

Table 1 — Booking responses

Vaccine bookings and rates before and after intense reporting.

Table 2 — Meditex performance

Meditex performance against minimum targets.

Energy labels in Tavira

Read the extracts and answer the questions that follow.

Text A — Appliance decisions

1. Tavira requires energy labels on refrigerators. Many labels contain numerous technical measures, and shoppers often select the first model meeting an acceptable standard. This is satisficing by consumers under bounded rationality rather than exhaustive utility maximization.

2. The energy agency tested a simplified label using three colours and an estimate of annual running cost. Prices and appliances were unchanged.

Text B — Retail strategy

1. HomeHub places its own high-margin refrigerator in the centre of a three-model display because shoppers frequently use the middle option as a rule of thumb.

2. The government is considering a standardized display order. HomeHub argues that retailers should retain control of product presentation and that consumers can search online.

Table 1 — Simplified-label trial

Results of the simplified-label trial

Table 2 — Private costs of two refrigerators

Annual private costs of two refrigerator models.

Food-waste reductions at Senda Markets

Read the extracts and answer the questions that follow.

Text A — Consumer decisions

1. Senda Markets marks products approaching their expiry date with a green sticker and places them beside checkout queues. The retailer describes this as a nudge because customers may still buy any product at unchanged prices.

2. Some customers infer that the green sticker is a recommendation. Others avoid the products because vivid news reports about food poisoning influence perceived risk, despite the products meeting safety standards.

Text B — Business responsibility

1. Senda adopted corporate social responsibility targets for food waste and donations. Managers accept sorting costs and lower current revenue from unsold stock.

2. Shareholders argue that products should instead be priced to maximize profit. Managers claim the policy attracts customers and motivates employees.

Table 1 — Green-sticker trial

Green-sticker trial outcomes by display arrangement.

Table 2 — Monthly waste programme

Monthly outcomes of Senda Markets' food-waste programme.

Workplace pension saving in Country A

The government of Country A is concerned that many workers intend to save for retirement but postpone joining a pension plan. It introduced automatic enrolment at several large employers. Workers may opt out at any time without charge.

Table 1 compares pension participation before and after automatic enrolment.

Eligible employees and pension participation rates before and after automatic enrolment at three employers in Country A.

Under the scheme, employees contribute 4% of annual salary and employers contribute a further 3%. Table 2 provides information about employees who remained enrolled after the policy was introduced.

Table 2: Employees remaining enrolled after automatic enrolment and pension contribution rates.

A government survey found that 68% of workers who had not joined a pension stated that the application was too complicated, 47% repeatedly postponed the decision and 39% could not compare the fees charged by different pension providers. Some workers argued that automatic enrolment could cause financial hardship for low-income households.

Meal choices in public hospitals

The health ministry of Country B tested different ways of presenting meals in hospital cafeterias. A healthy meal and a regular meal remained available as alternatives in every trial except under restricted choice. The underlying meals and prices did not change during the experiment.

Table 1 shows the results among equal-sized groups of cafeteria customers.

Meal selections under unrestricted active choice, the healthy default and mandated active choice, plus assigned meal offers under restricted choice, among equal-sized groups of 800 hospital cafeteria customers. Under restricted choice, the 640 and 160 figures are policy-assigned offers, not voluntary selections.

Table 2 provides price and cost information for the two meals.

Prices and unit costs for each meal, unchanged across all customer groups.

Health researchers estimated that the healthy meal generates lower average public healthcare costs and lower greenhouse-gas emissions. Critics argued that the government should not manipulate adults' food choices and that some patients require meals with different nutritional characteristics.

Growth and market share at Lumina Deliveries

Lumina Deliveries operates in the parcel-delivery market of Country D. Its managers receive bonuses based mainly on sales growth and market share. Table 1 shows selected information before and after Lumina reduced its average delivery price and expanded rapidly.

Lumina Deliveries and total-market indicators before and after expansion.

Table 2 shows selected indicators associated with the expansion.

Selected indicators for Lumina Deliveries before and after expansion.

Lumina's owners are concerned that current profit has fallen. Worker representatives report that expansion has increased workloads and injuries. The government is considering whether firms bidding for public delivery contracts should be required to meet safety and social-responsibility standards.

Responsible production at Selva Clothing

Selva Clothing is choosing between a conventional production plan and a responsible production plan using certified materials, safer working conditions and less polluting technology. Managers estimate the annual outcomes shown in Table 1.

Annual operating data for Selva Clothing's two production plans.

A consumer survey is summarized in Table 2.

Survey responses from 1000 consumers about responsible clothing production and price.

Selva's shareholders are divided. Some want the plan producing the greatest current profit. Others argue that corporate social responsibility could strengthen customer loyalty, reduce regulatory risk and improve long-run performance. The government is considering policies to encourage credible environmental and labour commitments by clothing firms.

Expansion at Movana Ride

Read the extracts and answer the questions that follow.

Text A — Business expansion

1. Movana Ride reduced fares and paid large joining bonuses to drivers. Its share of urban trips increased. Managers stated that market-share maximization was necessary to build a network before rivals expanded.

2. Current profit fell, but managers expect a larger user base to create brand recognition and lower average marketing costs. Drivers report longer working hours and reduced support quality.

Text B — Consumer behaviour

1. The app displays the most expensive vehicle category first. This initial fare may create anchoring bias, making the standard fare appear inexpensive.

2. The transport regulator is considering standardized fare displays and minimum service-quality requirements.

Table 1 — Market outcomes

Urban ride-hailing market trips and average fares in two years.

Table 2 — Movana's financial outcomes

Movana Ride's financial outcomes in Years 1 and 2.

Objectives at Arvena Furniture

Read the extracts and answer the questions that follow.

Text A — Managerial decisions

1. Arvena is owned by thousands of shareholders but managed by salaried executives. Managers seek sufficient profit to satisfy shareholders while preserving stable employment and manageable expansion. This is satisficing.

2. Shareholders argue that managers may prefer larger offices, more staff and lower workloads. Imperfect information makes it difficult for shareholders to determine whether the highest attainable profit has been earned.

Text B — Customer decisions

1. Arvena offers a ten-year repair service. Customers cannot easily judge future reliability and therefore face imperfect information. Many buy Arvena after recommendations from friends rather than comparing all producers.

2. Management proposes investing in repair centres and sustainably sourced timber. The investment would lower current profit but could support loyalty, growth and corporate social responsibility.

Table 1 — Managerial targets and outcomes

Managerial targets and current outcomes at Arvena Furniture.

Table 2 — Proposed investment

Annual revenue and total cost under Arvena's two plans.

Online subscription marketing in Country C

The consumer protection authority of Country C investigated an online entertainment company. Identical customers were randomly assigned to different presentations of the same monthly subscription. The subscription price and quality were unchanged across the groups.

Table 1 presents the results.

Purchase outcomes for customers shown different price presentations.

Customers shown the high reference price saw the statement “Usually 30 currency units—today only 18”. The service had not been widely sold at 30 currency units. The subscription automatically renewed, and its cancellation instructions occupied four pages. Table 2 contains further financial information.

Monthly subscription pricing, service-cost and refund information.

The company argued that consumers were free to reject or cancel the subscription. The authority found that many customers mistakenly believed that the displayed reference price represented the typical market price.

Household electricity tariffs in Country F

The energy regulator of Country F tested three choice arrangements for households selecting an electricity tariff. The renewable and standard tariffs remained available in all three trials. Table 1 shows the results.

Household tariff selections under three choice arrangements in Country F.

Table 2 provides information about monthly profit contributions and emissions under each tariff.

Monthly information per household for the two electricity tariffs. Profit contribution equals revenue minus cost.

The electricity supplier originally used the standard tariff as the default because it generated greater profit per customer. It is willing to accept a lower but satisfactory profit if this reduces emissions and protects its reputation. Low-income groups have expressed concern that the renewable tariff is more expensive.