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Q3. The two most common frameworks that economists use for modelling the way people think about risks are expected utility theory and prospect theory. What

Q3. The two most common frameworks that economists use for modelling the way people think about risks are expected utility theory and prospect theory. What is the need for two (somewhat incompatible) theories to explain the same thing? For example, are there some contexts where one theory makes more accurate predictions? Support your explanation with examples where appropriate. [10 marks]

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