According to prospect theory,would a person rather gamble $2 with the possibility of winning $4,or gamble 50 cents with the possibility of winning $1? Why?
A) $2, because the person could possibly win a greater amount of money
B) $2, because the person will ignore the possibility of losing more money
C) 50 cents, because the person can lose only a small amount of money
D) 50 cents, because the person will not mind being able to win only a little money

Question

Quizplus · Accepted Answer

Prospect theory suggests that individuals are risk-averse when it comes to gains, but risk-seeking when it comes to losses. In this case, the potential gains are $4 for gambling $2 and $1 for gambling 50 cents. However, the potential loss is also higher in the case of gambling $2. Therefore, individuals are more likely to choose the option with a lower potential loss, which is gambling 50 cents with the possibility of winning $1. This choice offers the possibility of a small gain with a limited risk, which aligns with the risk-averse tendencies of prospect theory.

According to Prospect Theory,would a Person Rather Gamble $2 with the Possibility