$37$

Multiple Choice

$3\mathrm{.}5$ points

One part of the concept of Prospect Theory states that people place undue emphasis on low probabiity events that have large potential losses. Which of the following is the best example of this behavior mistake?

Purchasing insurance with excessive coverage at high premium cost.

Making a decision based on rules of thumb rather than explicitly considering all avallable information.

Selecting an investment based on the expected returns and risks.

Holding onto an investment that has dropped $20\%$ due to a poor earnings trend because the price is well below its $52$ week high.