Question
There are two assets in the market, and . With probability , asset will experience a total loss in value, otherwise it will retain its
There are two assets in the market, and . With probability , asset will experience a total loss in value, otherwise it will retain its value. Similarly for asset . Furthermore, the returns of asset and are independent.You can make one of the following two choices:-Allocate 100% of your wealth to , or-Allocate 50% of your wealth to and 50% to . What allocation do you choose if your preferences are represented by Expected Utility Theory?What allocation do you choose if your preferences are represented by Prospect Theory, with no probability weighting?
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