Application Exercise 5h: Prospects experiments
- ($1500 x 0.33) + ($1400 X 0.66) + ($0 X 0.01) = $495 + $924 + 0. Therefore , the expected value of Prospect 1 is $1,419.
- ($920 x 1.00) = $920. Therefore, the expected value of Prospect 2 is $920.
- A rational person or utility maximiser would opt for Prospect 1.
- A person who is loss averse would opt for Prospect 2.
- The answers to this application exercise would be different for each class as it involves research by students.