a) Consider a set of monetary outcomes X = {x1, ... , x K } where the outcomes are arranged in increasing order x] - q. b) Consider the following decision problems: Decision 1: Choose between A. A sure gain of 240. B. A 25% chance to gain 1000, and a 75% chance to gain nothing. Decision 2: Choose between C. A sure loss of 750. D. A 75% chance to lose 1000, and a 25% chance to lose nothing. The lotteries in each decision are independent. When people are offered both decisions, and it is explained they will receive both of their choices, it has been found that most people choose A and D, so receive A + D. Discuss why such preferences might occur. Compare this pair of choices with the other possible pairs and discuss

Answer rating: 100% (QA)

The Answer is in the image, click to view ... View the full answer