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An Individual Has Preferences Consistent with Prospect Theory

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An individual has preferences consistent with prospect theory. The person takes their current wealth of $10,000 (plus any certain additions) as their reference point. Gains above this reference point are worth +1 util. Losses below this reference point are worth -2 utils. The person is faced with two choice problems. The first involves a choice between (A) no gamble and (B) a gamble with an equal chance of winning $1,800 and losing $1,000. The second choice problem,the person first has $1,000 taken away (resulting in the adjustment of the reference point) . The choice is then between (C) being given back $1,000 for sure and (D) an equal chance of winning $2,800 or nothing. What choices would the person make?


Definitions:

Unable

The state of being not capable of performing a task or achieving a goal.

Withdrawn-Rejected

A social categorization used to describe individuals, typically children, who are socially withdrawn and are actively rejected by their peers.

Victim

A person who has suffered harm, injury, or loss as a result of another individual's actions or events beyond their control.

Bullies

Individuals who use power, force, or influence to harm or intimidate those who are weaker or in a vulnerable position.

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