Simply assume that the probability-weighting function is t (p) = p for any pe [0, 1]....
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Simply assume that the probability-weighting function is t (p) = p for any pe [0, 1]. Suppose Albert, Bob, and Charlie have the same value function: v($z): %3D -2V- r<0 Consider the following two prospects: Prospect A: ($2, 1) Prospect B: ($3,0.5; $1,0.5) 1. Albert takes his endowment before choosing the two prospects as his reference point. Which prospect would he prefer according to the prospect theory? 2. Bob takes the worst possible outcome from the two prospects as his reference point. Which prospect would he prefer according to the prospect theory? 3. Charlie takes the best possible outcome from the two prospects as his reference point. Which prospect would he prefer according to the prospect theory? Simply assume that the probability-weighting function is t (p) = p for any pe [0, 1]. Suppose Albert, Bob, and Charlie have the same value function: v($z): %3D -2V- r<0 Consider the following two prospects: Prospect A: ($2, 1) Prospect B: ($3,0.5; $1,0.5) 1. Albert takes his endowment before choosing the two prospects as his reference point. Which prospect would he prefer according to the prospect theory? 2. Bob takes the worst possible outcome from the two prospects as his reference point. Which prospect would he prefer according to the prospect theory? 3. Charlie takes the best possible outcome from the two prospects as his reference point. Which prospect would he prefer according to the prospect theory?
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