According to prospect theory which is preferred prospect a, Finance Basics

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According to prospect theory which is preferred prospect a

Question: According to prospect theory, which is preferred?

a. Prospect A or B?

Decision (i). Choose between:

A(0.80, $50, $0) and

B(0.40, $100, $0)

b. Prospect C or D?

Decision (ii). Choose between:

C(0.00002, $500,000, $0) and

D(0.00001, $1,000,000, $0)

c. Are these choices consistent with expected utility theory? Why or why not?

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