Question: 1. Suppose that v(x) = 1 and v(-2) = -2x for positive r > 0. Let (0.001) = 0.005 and 70.999) = 0.995. According to

1. Suppose that v(x) = 1 and v(-2) = -2x for

1. Suppose that v(x) = 1 and v(-2) = -2x for positive r > 0. Let (0.001) = 0.005 and 70.999) = 0.995. According to the prospect theory, what is the maximal price that this person is willing to pay to insure a $2000 TV set that breaks down with probability 0.001? Assume that TV is registered as a $2000 loss if it breaks down, and the insurance price is a sure loss. (A) $2; (B) $4; (C) $8; (D) $10. 2. The weighting function (p) in the prospect theory lies (A) above the diagonal for all 0 0 and below the diagonal for large p 0 and above the diagonal for large p 0. Let (0.001) = 0.005 and 70.999) = 0.995. According to the prospect theory, what is the maximal price that this person is willing to pay to insure a $2000 TV set that breaks down with probability 0.001? Assume that TV is registered as a $2000 loss if it breaks down, and the insurance price is a sure loss. (A) $2; (B) $4; (C) $8; (D) $10. 2. The weighting function (p) in the prospect theory lies (A) above the diagonal for all 0 0 and below the diagonal for large p 0 and above the diagonal for large p

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