Question
Actions for Choice Between Prospects Consider two prospects. Problem 1: Choose between Prospect A: $2,500 with probability 0.33 $2,400 with probability 0.66 Zero with probability
Actions for Choice Between Prospects
Consider two prospects.
Problem 1: Choose between
| Prospect A: | $2,500 with probability | 0.33 |
| $2,400 with probability | 0.66 | |
| Zero with probability | 0.01 | |
| Prospect B: | $2,400 with probability | 1.00 |
Problem 2: Choose between
| Prospect C: | $2,500 with probability | 0.33 |
| Zero with probability | 0.67 | |
| Prospect D: | $2,400 with probability | 0.34 |
| Zero with probability | 0.66 |
It has been shown by Daniel Kahneman and Amos Tversky (1979, Prospect theory: An analysis of decision under risk,Econometrica47(2), 263-291) that more people choose B when presented with problem 1 and when presented with problem 2, most people choose C. These choices violate expected utility theory. Why?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Behavioral Finance Psychology Decision-Making and Markets
Authors: Lucy Ackert
1st edition
324661177, 978-0538752862, 538752866, 978-1111781675, 1111781672, 978-1133455486, 978-0324661170
