You Have a Project That Costs $800,000

question 3

Multiple Choice

You have a project that costs $800,000.It has a 1/3 chance of paying off $3,000,000 and a 2/3 chance of paying off $0.What is the expected profit from the new project?

• A)$300,000
• B)$200,000
• C)$100,000
• D)zero

Understand the evidence of emotional reactions without deliberate rational thinking.

Understand the concept of the endowment effect in behavioral economics.

Recognize how prospect theory explains human behavior towards risks and rewards.

Identify the influence of anchoring on decision-making.

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Definitions:

Actual Future Prices

The real prices at which assets, commodities, or securities will be traded in the future, as opposed to predicted or estimated prices.

Theoretically Correct

A term indicating that something is consistent with theory or established principles, often used in academic or scientific contexts.

Differences

The distinctions or variations between two or more entities or items, highlighting how they are not identical.

Short Position

The selling of a stock or other securities not owned by the seller, expecting the price will fall so it can be bought back at a lower price.