Suppose that v(r) = e and v(-2) = -2x for positive r > 0. Let 7(0.001)...

 

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Suppose that v(r) = e and v(-2) = -2x for positive r > 0. Let 7(0.001) = 0.005 and T(0.999) = 0.995. According to the prospect theory, what is the maximal price that this person is willing to pay to insure a $2000 TV set that breaks down with probability 0.001? Assume that TV is registered as a $2000 loss if it breaks down, and the insurance price is a sure loss. %3D (A) $2; (B) $4; (C) $8; (D) $10. Suppose that v(r) = e and v(-2) = -2x for positive r > 0. Let 7(0.001) = 0.005 and T(0.999) = 0.995. According to the prospect theory, what is the maximal price that this person is willing to pay to insure a $2000 TV set that breaks down with probability 0.001? Assume that TV is registered as a $2000 loss if it breaks down, and the insurance price is a sure loss. %3D (A) $2; (B) $4; (C) $8; (D) $10.

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Assume that TV is registered as a 20... View the full answer