Problem 1 Choose between Prospect A $2,500 with probability 0 33 $2,400 with probability 0 66 Zero with probability 0 01 Prospect B $2,400 with probability 1 00 Problem 2 Choose between Prospect C $2,500 with probability 0 33 Zero with probability 0 67 Prospect D $2,400 with probability 0 34 Zero with probability 0 66 It has been shown by Daniel Kahneman and Amos Tversky (1979, Prospect theory An analysis of decision under risk, Econometrica 47(2), 263 291) that more people choose B when presented with problem 1 and when presented with problem 2, most people choose C These choices violate expected utility theory Why

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Question: Problem 1: Choose between Prospect A: $2,500 with probability 0.33 $2,400 with probability 0.66 Zero with probability 0.01 Prospect B: $2,400 with probability 1.00 Problem

Problem 1: Choose between

Prospect A:	$2,500 with probability	0.33
	$2,400 with probability	0.66
	Zero with probability	0.01
Prospect B:	$2,400 with probability	1.00

Problem 2: Choose between

Prospect C:	$2,500 with probability	0.33
	Zero with probability	0.67
Prospect D:	$2,400 with probability	0.34
	Zero with probability	0.66

It has been shown by Daniel Kahneman and Amos Tversky (1979, Prospect theory: An analysis of decision under risk, Econometrica 47(2), 263-291) that more people choose B when presented with problem 1 and when presented with problem 2, most people choose C. These choices violate expected utility theory. Why?

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