Behavioral Economics: Prospect Theory Quiz

What is the main purpose of Prospect Theory as developed by Kahneman and Tversky?

Which of the following is NOT a component of the two-stage process in Prospect Theory?

In the context of Prospect Theory, how are outcomes defined according to the theory?

Which phenomenon describes individuals' tendency to prefer avoiding losses over acquiring equivalent gains within Prospect Theory?

What significant violation within Expected Utility Theory is highlighted by Prospect Theory?

What does loss aversion imply about people's preferences when facing potential losses?

According to Expected Utility Theory, what is required for transitivity to hold?

What does the independence axiom state in the context of decision-making?

Which of the following best describes nonlinear preferences in behavioral economics?

What is a key characteristic of risk aversion according to Expected Utility Theory?

What does Expected Utility Theory (EUT) primarily focus on?

What is a key characteristic of risk aversion in decisions?

Which phenomenon refers to the tendency to prefer smaller, certain rewards over larger, uncertain ones?

What role does Prospect Theory play in behavioral economics?

What are the two main stages in Prospect Theory?

What type of preferences does Prospect Theory specifically address?

Which axiom is NOT part of Expected Utility Theory?

Which of the following best describes 'nonlinear preferences' as referenced in behavioral economics?

What does prospect theory primarily address in decision-making?

What is the expected utility for option A (V(A)) based on the given probabilities and outcomes?

In option B, what is the main reason for the higher expected utility compared to option A?

Which of the following statements best represents risk seeking in decision-making?

What role does loss aversion play in behavioral economics?

What is the definition of the utility function mentioned in the expected utility theory?

Which axiom is not typically associated with expected utility theory?

What does the 'editing' stage in prospect theory involve?

What does the editing phase in Prospect Theory aim to do?

Which of the following concepts is NOT a part of Prospect Theory?

In the context of Prospect Theory, what does loss aversion refer to?

Which of the following is NOT a major operation involved in the editing phase of Prospect Theory?

What does Prospect Theory primarily explain in decision-making?

Which of these options signifies a characteristic of nonlinear preferences in Prospect Theory?

In the evaluation stage of Prospect Theory, what is primarily assessed?

Which statement best describes risk-seeking behavior in the context of Prospect Theory?

In expected utility calculations, how is utility derived from monetary values?

What is the expected utility of accepting a gamble with a 50% chance of winning $1 and a 50% chance of losing $1 for a risk-averse individual?

What outcome should a risk-neutral individual prefer in a gamble offering equal chances of winning and losing?

Which concept highlights the tendency of individuals to prefer avoiding losses rather than acquiring equivalent gains?

How is the expected utility for the prospect of $1000 with a 50% probability calculated?

When faced with a $2 ownership and a gamble, what is the expected utility of rejecting the gamble?

What characterizes the non-linear preferences observed in expected utility theory?

What principle is illustrated when a decision-maker opts for a gamble despite having a guaranteed amount?