Question: Examine economic behavior within the context of utility functions (expected utility theory) and the value functions (prospect theory) , consider the differences. Give examples. Please

Examine economic behavior within the context of utility functions(expected utility theory) and the value functions(prospect theory), consider the differences. Give examples. Please add your references.

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https://www.slideshare.net/MichalStupavskyCFA/160708-applied-behavioral-economics

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Examine economic behavior within the context of utility functions(expected utility theory) and

Prospect theory versus mainstream expected utility theory Value function Utility function (cornerstone of prospect theory) (expected utility theory) VALUE Concevily LOSSES Reference point GAINS 100 1090 Convenily Nature Reviews | Newrow . Relative values (changes) matter, not absolute values . Absolute values matter, not relative changes (in . Value = Wiv(x 1) + W2V(x2) + ...+ wv(x) wealth) . Concave in gains, convex in losses . Utility = p,u(x, ) + pzu(x2) + ...+ p,u(x) . => Risk-seeking in losses, risk aversion in gains . General risk-aversion due to concavity . Losses are felt 2-2.5 times more than gains of the . Gains and losses are felt in the same way (magnitude) same magnitude Applied Behavioral Economics 9 B July 2016

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