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The following questions are given to a group of subjects. Which of the following do you prefer? A: Certainty of receiving £4,000. B:80% chance of receiving £5,000. Which of the following do you prefer? C: 20% chance of receiving £4,000. D: 16% chance of receiving £5,000. Empirical results show that most subjects would prefer A to B, and D to C.

The following questions are given to a group of subjects. Which of the following do you prefer? A: Certainty of receiving £4,000. B:80% chance of receiving £5,000. Which of the following do you prefer? C: 20% chance of receiving £4,000. D: 16% chance of receiving £5,000. Empirical results show that most subjects would prefer A to B, and D to C.

A First Course in Probability (10th Edition)
A First Course in Probability (10th Edition)
10th Edition
ISBN:9780134753119
Author:Sheldon Ross
Publisher:Sheldon Ross
Chapter1: Combinatorial Analysis
Section: Chapter Questions
Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...
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The following questions are given to a group of subjects. Which of the following do you prefer? A: Certainty of receiving £4,000. B: 80% chance of receiving £5,000. Which of the following do you prefer? C: 20% chance of receiving £4,000. D: 16% chance of receiving £5,000. Empirical results show that most subjects would prefer A to B, and D to C. Consider the probability weighting function defined by Tverski and Kahneman: pr w(p) P = [0, 1] 1/72 (p¹+(1−p)¹) ¹7 ³ with parameter y = 0.7. We define a value function v, and consider units of £ 1,000. We then get the inequality A suitable value function that satisfies that inequality is [Write answers to 3 decimal places.] ◆ v(4) v(5)
Transcribed Image Text:The following questions are given to a group of subjects. Which of the following do you prefer? A: Certainty of receiving £4,000. B: 80% chance of receiving £5,000. Which of the following do you prefer? C: 20% chance of receiving £4,000. D: 16% chance of receiving £5,000. Empirical results show that most subjects would prefer A to B, and D to C. Consider the probability weighting function defined by Tverski and Kahneman: pr w(p) P = [0, 1] 1/72 (p¹+(1−p)¹) ¹7 ³ with parameter y = 0.7. We define a value function v, and consider units of £ 1,000. We then get the inequality A suitable value function that satisfies that inequality is [Write answers to 3 decimal places.] ◆ v(4) v(5)
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