Prospect Theory and Behavioral Economics Quiz
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Questions and Answers

According to Prospect Theory, decision-making under risk involves a two-step choice process. What are the two steps?

  • Simplification and segregation
  • Coding and combination
  • Editing and evaluation (correct)
  • Detection and cancellation

    • Prospect Theory's editing phase involves the preliminary analysis of offered prospects. What is the purpose of this phase?

  • To simplify options
  • To code prospects
  • To detect dominance
  • To facilitate evaluation (correct)

    • Prospect Theory's evaluation phase involves individuals evaluating each edited prospect. How do individuals choose the prospect with the highest value?

  • By simplifying options
  • By choosing the prospect with the highest value (correct)
  • By detecting dominance
  • By segregating prospects

    • What are some examples of violations of Expected Utility Theory (EUT)?

    <p>Allais paradox and Ellsberg paradox</p> Signup and view all the answers

    Prospect Theory involves the use of heuristic rules. Are these rules necessarily conscious?

    <p>No, they are not necessarily conscious</p> Signup and view all the answers

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