what is the disadvantage( limitation) of prospect of theory ?
Answer : Prospect theory is a behavioural model which shows how people decide between different alternatives and make wise as well as logical decision .There are various disadvantage of prospect theory as follows :
Problem 3: (Application of the prospect theory probability weighting function): A famous implication of prospect theory is a preference for positively skewed prospects and an aversion to negatively skewed prospects. For example, Tversky and Kahneman (1992) found that people frequently preferred: 1) Gaining $95 with certainty over a 95% chance of gaining $100 and a 5% chance of gaining $0. 2) Losing $5 with certainty over a 5% chance of losing $100 and a 95% chance of losing $0. 3)...
what is a disadvantage of the local bond model over MO theory
what do you think would be a limitation to paiget theory, when it comes to developmental process with children? do you think paiget is accurate when it comes to the develpment process ?
In 1979, psychologists Daniel Kahneman and Amos Tversky published a paper titled, “Prospect Theory: An Analysis Of Decision Under Risk” The theory states: “People make decisions based on the potential value of losses and gains rather than the final outcome" What is an example of personal wrong decision to prove the theory ?
Recommend a firm as in investment prospect using microeconomic theory to assess its ability to generate and maintain super-normal profits.
A limitation of the use of inductive reasoning in the development of an accounting theory is that it: Select one: a. is only useful for developing normative theories. b. does not question the appropriateness of the observed actions. c. is based on identifying a set of objectives. d. attempts to improve a particular process.
Problem 4: (Prospect theory explanation for the Common Ratio Effect): A famous experimental violation of EU is the finding by Kahneman and Tversky that most people preferred $3000 with certainty over an 80% chance of $4000, but preferred a 20% chance of $4000 over a 25% chance of $3000. Using the probability weight w(?) = (1 − ?)? + ?? for the probability of the best outcome of a lottery and the weight w(?) = (1 − ?)(1 − ?)...
(a) Explain why product bundling leads to lower prices according to prospect theory. (b ) Give an example for (a). (c ) Give an example that is an exception to (a), that is where the opposite is true, and the bundled product has a higher price than the summative price of its individual components.
Which of the following is the most likely reaction of investors according to prospect theory? A. When they gain €20,000, they feel more than twice as happy as when they gain €10,000. B. When they lose €20,000, they feel as twice bad as when they lose €10,000. C. When they lose €10,000, the magnitude of their disappointment is larger than the magnitude of their happiness from a €10,000 gain. D. Investors tend to sell losing portfolios as quickly as possible.
The at-risk limitation is basically the same as the tax basis limitation. Explain what this limitation is.