Actions for Choice Between Prospects Consider two prospects.
Actions for Choice Between Prospects
Consider two prospects.
Problem 1: Choose between
| Prospect A: | $2,500 with probability | 0.33 |
| $2,400 with probability | 0.66 | |
| Zero with probability | 0.01 | |
| Prospect B: | $2,400 with probability | 1.00 |
Problem 2: Choose between
| Prospect C: | $2,500 with probability | 0.33 |
| Zero with probability | 0.67 | |
| Prospect D: | $2,400 with probability | 0.34 |
| Zero with probability | 0.66 |
It has been shown by Daniel Kahneman and Amos Tversky (1979, “Prospect theory: An analysis of decision under risk,” Econometrica 47(2), 263-291) that more people choose B when presented with problem 1 and when presented with problem 2, most people choose C. These choices violate expected utility theory. Why?
Looking for a Similar Assignment? Order now and Get 10% Discount! Use Coupon Code "Newclient"
