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Question 6: (30 points) You MUST explain your answers. Suppose that we observe the following preference (where X > 0 or X ($0 , 0.9
Question 6: (30 points) You MUST explain your answers. Suppose that we observe the following preference (where X > 0 or X ($0 , 0.9 ; $X , 0.1 ) (=) Suppose that Skye is a risk-averse expected utility maximizer. For what values of X could Skye exhibit this preference? (b) Suppose that Jane evaluates gambles according to prospect theory with "(p) = p and a value function that has the three properties suggested by Kahneman & Tversky. For what values of X could Jane exhibit this preference? (c) Suppose that Elizabeth evaluates gambles according to prospect theory with a value function that has the three properties suggested by Kahneman & Tversky, and with a probability weighting function that has *(0.1) > 0.1. For what values of X could Elizabeth exhibit this preference? Suppose instead that we observe the following preference (where Y > 0 or Y ($0.4Y , 1 ) (d) Suppose that Skye is a risk-averse expected utility maximizer. For what values of Y could Skye exhibit this preference? (e) Suppose that Jane evaluates gambles according to prospect theory with "(p) = p and a value function that has the three properties suggested by Kahneman & Tversky. For what values of Y could Jane exhibit this preference? (f) Suppose that Elizabeth evaluates gambles according to prospect theory with a value function that has the three properties suggested by Kahneman & Tversky, and with a probability weighting function that has (0.4)
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