1. In the context of prospect theory, state the four-fold pattern of risk attitudes and how it arises. Be specific.
2. A problem that plagues many investors is failure to diversify. (a) What is the name given to a failure to diversify one's portfolio internationally? Describe the problem. (b) In your own words, provide a behavioral explanation for this tendency. (c) In your own words, explain two rational (non-behavioral) reasons why investors might exhibit a failure to diversify internationally. (d) Other than failure to diversify internationally, describe another instance where people fail to diversify, and explain the human tendency or bias that may underlie this behavior (i.e., explain it in terms of behavioral finance).
3. A) Provide an example where someone who works in the finance profession may make a sub- optimal decision due to heuristics. The example must be different from any mentioned elsewhere in these assignment questions. Explain fully to make the financial context very clear and to clarify the way the example demonstrates the influence of a specific type of heuristic
B) Provide an example where someone who works in the finance profession may use heuristics to help themselves or someone else make a better decision than they otherwise might. Be practical and realistic. Again the example must be different from any mentioned elsewhere in these assignment questions. Explain fully to make the financial context very clear and to clarify the way the example demonstrates the influence of a specific type of heuristic.