Which of the following is the most likely reaction of investors according to prospect theory? A....
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.
Homework Answers
C is correct
Prospect theory says that people value losses and gains differently. When they lose €10,000, the magnitude of their disappointment is larger than the magnitude of their happiness from a €10,000 gain.
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