7. In our discussion of prospect theory, we considered the following choice of gambles: Gamble A: 0.33
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7. In our discussion of prospect theory, we considered the following choice of gambles:
Gamble A: 0.33 probability of receiving 2500, 0.66 of receiving 2400 and 0.01 of receiving 0 Gamble B: 100% probability of receiving 2400 and Gamble A*: 0.33 probability of receiving 2500, 0.67 of receiving 0 Gamble B*: 0.34 probability of receiving 2400 and 0.66 of receiving 0 Demonstrate that if an investor is indifferent between Gambles A and B, he must be indifferent to A* and B* in order to fulfill the strong independence axiom identified by von Neumann and Morgenstern.
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