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Difficulty: EasySelect-in-Passage Question Analysis

Read the passage below:

Conventional economic models long assumed that consumer decisions are driven entirely by rational utility maximization. However, recent empirical work in behavioral economics demonstrates that cognitive biases systematically alter financial choices. For instance, a 2018 study observed that individuals consistently value immediate rewards over significantly larger delayed gains, a phenomenon known as hyperbolic discounting. Critics contend that such laboratory findings fail to account for real-world market mechanisms that attenuate irrational behavior. Nonetheless, these findings have prompted policymakers to redesign default savings plans to nudge individuals toward optimal long-term outcomes.

Which sentence in the passage provides specific empirical evidence supporting the claim that cognitive biases influence financial decision-making?

  1. A
    Conventional economic models long assumed that consumer decisions are driven entirely by rational utility maximization.
  2. B
    However, recent empirical work in behavioral economics demonstrates that cognitive biases systematically alter financial choices.
  3. For instance, a 2018 study observed that individuals consistently value immediate rewards over significantly larger delayed gains, a phenomenon known as hyperbolic discounting.Answer
  4. D
    Critics contend that such laboratory findings fail to account for real-world market mechanisms that attenuate irrational behavior.
  5. E
    Nonetheless, these findings have prompted policymakers to redesign default savings plans to nudge individuals toward optimal long-term outcomes.

Answer

The sentence stating, 'For instance, a 2018 study observed that individuals consistently value immediate rewards over significantly larger delayed gains, a phenomenon known as hyperbolic discounting.'
The sentence referencing the 2018 study directly provides specific empirical evidence by citing observational data on hyperbolic discounting to demonstrate how cognitive biases affect financial choices.

Step-by-Step Solution

1
Analyze the prompt requirement
The prompt requires selecting a sentence that supplies specific empirical evidence (data, study, or observed phenomenon) rather than a theoretical assertion or policy outcome.
Select-in-passage questions require identifying the exact sentence fulfilling a specific rhetorical function.
2
Evaluate the rhetorical role of each sentence in the passage
The sentence referencing the 2018 study introduces specific experimental observation ('hyperbolic discounting') supporting the broader claim.
Concrete study details serve as empirical evidence for general theoretical claims.

Key Concept

Select-in-Passage Question Analysis: Identifying Supporting Empirical Evidence
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Select-in-Passage Question Analysis

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