Prospect theory has three key elements. Among them is that, the perceived probability is

subject to bias i$.$e$.$ small and large probabilities are exaggerated while medium ones are

underweighted. Kahneman and Tversky $(1979)$ and Kahneman $(2011),$ asserts that as

results of biased weighting of perceived probabilities individuals might involve themselves

into either risk seeking behavior or become risk averse.

Required: With examples assess the impact of perceived probabilities on business and

investment decisions.

Hint: Consider certainty and possibility effects on both gain and loss frames.