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Chapter 1: Q 6 (page 15)

Recently, a bank was trying to decide what fee to charge for “expedited payments”—payments that the bank would transmit extra-speedily to enable customers to avoid late fees on cable TV bills, electric bills, and the like. To try to determine what fee customers were willing to pay for expedited payments, the bank conducted a survey. It was able to determine that many of the people surveyed already paid fees for expedited payment services that exceeded the maximum fees that they said they were willing to pay. How does the bank’s finding relate to economists’ traditional focus on what people do, rather than what they say they will do?

Short Answer

Expert verified

The reaction is based on bounded rational behavior.

Step by step solution

01

Step 1. Bounded Rational Behavior.

Bounded rationality behavior explains that people are rational but not completely as they do not examine every possible choice given to them but instead sort among the alternatives.

02

Step 2. The bank's finding.

The bank's finding shows that the people show bounded rational behavior. Despite being given various choices agree to pay more than their willingness by a simple method.to make a decision.

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