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ADVANCED ANALYSIS In the algebraic version of prospect theory, the variable X represents gains and losses. A positive value for x is a gain. a
ADVANCED ANALYSIS In the algebraic version of prospect theory, the variable X represents gains and losses. A positive value for x is a gain. a negative value for x is a lossr and a zero value for x represents remaining at the status quo. The socalled value function, um, has separate equations for translating gains and losses into, respectively. positive values (utility) and negative values {disutility}. The gain or loss is typically measured in dollars, and the resulting value (utility or disutility) is measured in utils. Atypical person values gains [x > 0} using the function lel = x038 and losses {xs 0} using the function le} = 2.5*{X}O'88. In addition, if the person stays at the status quo {where x = 0}, then vix} = 0. First use a scientific calculator for a spreadsheet program} and the typical person's value functions for gains and losses to fill out the missing spaces in the following table. Then answer the questions that follow. Instructions: Enter your answers rounded to two decimal places. If you are entering any negative numbers be sure to include a negative sign H in front of those numbers. __ Gain or Less Gain or Less Gain or Less -_- -- \" -_- -_- a. What is the total value of gaining $1? mun-l.\" Does the typical person experience diminishing marginal disutility from losses? (Click to select)v d. Suppose that a person simultaneously gains $1 from one source and loses $1 from another source. What is the person's total utility after summing the values from these two events? |:| utilfs] Can a combination of events that leaves a person with the same wealth as they started with be perceived neg: El Screen capture . now A , Screenshot taken [Click to select)v Show in folder e. Suppose that an investor has one investment that gains $2 while another investment simultaneously loses $1. ti total utility after summing the values from these two events? utilis] Will an investor need to have gains that are bigger than her lossesjust to feel as good as she would if she did simply remained atthe status quo? (Click to select)v
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