An inventor is considering two investments that have the same initial cost. The first investment has an expected payoff of a loss of $10,000 with a probability of 50% and an income of $100,000 with a probability of 50%. The second investment has a probability of income of $50,000 with a probability of 85% and a probability of a zero return of 15%. If this individual exhibits tendencies consistent with prospect theory, which investment will the investor choose and explain why that investment would be chosen.

Answer rating: 100% (QA)

The investor should choose the second investment This becau... View the full answer