(13) Consider a person with the following value function under prospect theory: when z 20 v(2) - -2(-2)5 when z<0 Assume that this individual weights values by probabilities, instead of using a prospect theory weighting function. Which of the following prospects would be preferred? (A) P1(.8, 1000, -800) (B) P2(.7, 1200, -600) (C) P3(.5, 2000, -1000) (D) P4(.4, 2000, -1000) Liannn lne to

(13) Consider a person with the following value function under prospect theory: when z 20 v(2) - -2(-2)5 when z<0 Assume that this individual weights values by probabilities, instead of using a prospect theory weighting function. Which of the following prospects would be preferred? (A) P1(.8, 1000, -800) (B) P2(.7, 1200, -600) (C) P3(.5, 2000, -1000) (D) P4(.4, 2000, -1000) Liannn lne to

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter20: The Problem Of Adverse Selection Moral Hazard

Section: Chapter Questions

Problem 3MC

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