In the context of behavioral economics, which of the following scenarios best illustrates the combined effects of loss aversion, availability heuristic, and temporal discounting in decision-making?

In behavioral economics, loss aversion means that people feel the pain of losing something more strongly than the pleasure of gaining something of equal value. The availability heuristic refers to how people rely on immediate examples that come to mind when making decisions, while temporal discounting is the tendency to favor immediate rewards over future benefits. A good example of these concepts is when someone decides not to invest in a retirement fund because they focus on the money they would lose today rather than the larger amount they could gain in the future. They might think about the immediate expenses they would have to cut, which feels like a loss, and they might remember a friend who lost money in a similar investment, making them hesitant. This combination of fearing loss, recalling negative examples, and prioritizing immediate needs leads them to make a choice that could harm their long-term financial health.