2. (a)

People often over-/under-estimate event probabilities. Explain, with the help of examples, the manner in which people over-/under-estimate probabilities because of the (i) availability, (ii) representativeness and (iii) anchoring and adjustment heuristics.

(900 words maximum) (60 marks)

(b) They also tend to over-/under-weight probabilities during the decision-making process. Explain, with the help of a diagram and numerical examples, the manner in which people over-/under-weight probabilities as described by Prospect Theory.

(500 words maximum) (40 marks)