What is the main difference between traditional economics and behavioral economics .

Consider the following investment opportunities, A and B, and their rates of return in each of the two states, Failure and Success. Failure Success A -100% 300% B 50% 50% The probability of each state occurring is 0.5. Explain how: (a) a risk-neutral investor will allocate money between these opportunities [3] (b) a log utility investor, i.e. U(w) = In(w), will allocate money [4] [Total 7] Consider an investment in a risky asset class, with returns in period : of r, which are independent and identically distributed with a normal distribution with standard deviation, G. Consider the process R, = 0.5 x (r, + 1). (a) Derive expressions for the unconditional mean return and volatility of this process. [4] (b) State with detailed reasons whether or not this process stochastically dominates (to second order) its underlying asset class. [5]