A researcher gave sports-card traders a sports card in exchange for their participation in the study. There were two possible cards, A and B. Each participant randomly received one of the two cards, and was then asked whether she would like to exchange it for the other card. a) By neoclassical (traditional economics) logic, approximately what percentage of participants should exchange? Why? (Hint, the reason does not depend on whether the two cards are of equal value.) b) Among inexperienced traders, 6.8% make the exchange. Explain this phenomenon using prospect theory. c) Among experienced traders, 46.7% make the exchange. Why might experienced traders behave differently from inexperienced ones?

A researcher gave sports-card traders a sports card in exchange for their participation in the study. There were two possible cards, A and B. Each participant randomly received one of the two cards, and was then asked whether she would like to exchange it for the other card. a) By neoclassical (traditional economics) logic, approximately what percentage of participants should exchange? Why? (Hint, the reason does not depend on whether the two cards are of equal value.) b) Among inexperienced traders, 6.8% make the exchange. Explain this phenomenon using prospect theory. c) Among experienced traders, 46.7% make the exchange. Why might experienced traders behave differently from inexperienced ones?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter4: Utility Maximization And Choice

Section: Chapter Questions

Problem 4.2P

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