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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?
Let Y be a random variable with E[Y]
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