Prospect Theory Function Shapes

Question 1

Discriminability may be enhanced in the vicinity of __________ or ____________

Answer 1

Salient landmarks or reference points.

Question 2

What did the pot of gold test prove?

Answer 2

You could change an unbounded gain representation to a bounded representation.

Increase risk seeking behavior for large gains.

Question 3

If you change the perceived difference in the pot of luck experiment to a percentage, what happens to the curve on a graph?

Answer 3

It becomes s-shaped.

Question 4

What does the validity of PT’s functions depend on?

Answer 4

How probabilities and outcomes are described.

Question 5

What are some limitations of prospect theory?

Answer 5

• The validity of PT’s probability weighting and value functions depend on how probabilities are described.
• How common is it to be presented with probabilities?