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Using the four-fold pattern of risk preferences to map financial choices, what cognitive mistake, or behavioral bias, is someone relying on when they do the
Using the "four-fold pattern of risk preferences" to map financial choices, what cognitive mistake, or behavioral bias, is someone relying on when they do the following? Use the number in the quadrant below to label the behavior: (i.e. #1 = "Certainty Effect" in the gain domain). Please calculate the value of each decision. . Investing $1000 in a leveraged ETF with 100% of principal at risk, with a 5% chance of making $5000 Buying 10 $1.00 lottery tickets when the Mega Millions prize increases from $100 million to $1 billion Paying $100 for a $5000 warranty on the 1% chance you dan ge or lose your new Apple Powerbook Turning down an early acceptance to Princeton in the hopes of getting into Harvard . The Fourfold Pattern of Preferences READINGRAPHICS ACHONARE OCHTS IN ONE PAGE Gains Losses HIGH PROBABILITY 95% chance to win $10,000 95% chance to lose $10,000 (Certainty Effect) Risk Averse (e.g.court settlements) Risk Seeking (e.g. desperate gambles) LOW PROBABILITY 5% chance to win $10,000 5% chance to lose $10,000 (Possibility Effect) Risk Seeking (e.g. lottery tickets) Risk Averse(e.g.insurance) Adapted from Thinking, Fast and Slow by Daniel Kahneman
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