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TRUE/FALSE Q. Prospect theory includes loss aversion by having the PT value function be steeper for...

TRUE/FALSE

Q. Prospect theory includes loss aversion by having the PT value function be steeper for losses than gains.

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Rahul Sunny answered 2 years ago
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TRUE/FALSE Q. Prospect theory includes loss aversion by having the PT value function be steeper for...
TRUE/FALSE Q. Prospect theory includes loss aversion by having the PT value function be steeper for losses than gains.
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7. Behavioral economists have coined the term “loss aversion” as part of “prospect theory” and it...
7. Behavioral economists have coined the term “loss aversion” as part of “prospect theory” and it suggests that for most people, “losses loom larger than gains.” Recall our illustration in class where people seemed to be more willing to take risks to avoid losses but play it more conservatively when achieving a similarly sized gain. In their experiments, they demonstrated loss aversion by simulating how much money a student would be willing to pay for a coffee mug that they...
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In prospect theory, the interplay of overweighting of small probabilities and concavityconvexity of the value function leads to the so-called fourfold pattern of risk attitudes. Each quadrant shows an individual’s choice between two prospects (x; p) in the first row and the individual’s risk attitude in the second row. Gains Losses High probability Choose (949) over (1000, 0.95) Risk averse Choose (-1000,0.95) over (-949) Risk seeking Low probability Choose (1000, 0.05) over (51) Risk seeking Choose (-1000,0.95) over (-949) Risk...
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Does the weighting function in the prospect theory magnify the importance of very low and very high probabilities? Why and how? Prospect Theory offers an alternative framework to making decisions by expected utility maximization. It allows for these realistic behaviors exhibited by investors: I) Having better prospects if seen next to an irrelevant, slightly flawed, alternative II) Measuring success with respect to an (arbitrary) reference point III) Loss aversion IV) Tolerance for ambiguity when faced with the prospect of extraordinary...
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