Question

Why is expected utility theory still far more widely used by economists than prospect theory?

Why is expected utility theory still far more widely used by economists than prospect theory?

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

In utility theory , satisfaction of consumer is measured in Utils which is dependent on wealth where as in prospect theory , satisafaction is measured in value , which calculates gains or losses.

Utility theory successfully implemented the principle of transitivity and it was helpful in ranking the preference for two or more goods.

However, prospect theory lacks the concept of transitivity and economists are unable to rank the preferences of consumer .

Therefore,utility theory is widely used than prospect theory,

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1. Is expected utility theory of any practical relevance? Why or why not? ________________________________________________________________________________________ ________________________________________________________________________________________ ___
1. Is expected utility theory of any practical relevance? Why or why not? ________________________________________________________________________________________ ________________________________________________________________________________________ ________________________________________________________________________________________ ________________________________________________________________________________________ ________________________________________________________________________________________ ________________________________________________________________________________________ 2. Prospect theory involves introducing several new “parameters” into the expected utility model of choice. Does this constitute “over-fitting”? How might we ensure that we don’t accept Prospect Theory over expected utility simply because introducing new parameters always leads to a better model fit? ________________________________________________________________________________________ ________________________________________________________________________________________ ________________________________________________________________________________________ ________________________________________________________________________________________ ________________________________________________________________________________________ ________________________________________________________________________________________ 3. During the global financial crisis, housing prices in the U.S....
Allais Paradox is best explained by (A) expected value; (B) expected utility; (C) prospect theory; (D)...
Allais Paradox is best explained by (A) expected value; (B) expected utility; (C) prospect theory; (D) none of the above.
Use utility theory to describe why children like candy more than money?
Use utility theory to describe why children like candy more than money?
Question: Please create a table comparing the differences of expected utility theory and prospect theory. Please...
Question: Please create a table comparing the differences of expected utility theory and prospect theory. Please given an example for each difference. Are the current answers comparisons correct? And can you please help me complete the examples missing if so Expected Utility Theory Prospect Theory Example The basic objects of preference are states of wealth (including non-monetary things) The basic objects of preference are changes from a neutral reference point (gains and losses) Risk averse everywhere Risk averse for gains,...
1. According to prospect theory, firms are more likely to shrink packages than raise prices because:...
1. According to prospect theory, firms are more likely to shrink packages than raise prices because: a. consumers feel the loss of a price increase more than they feel the loss of buying a smaller package for their money. b. they don’t understand that consumers recognize price increases easily, regardless of what form they take. c. consumers associate smaller packages with higher quality luxury goods d. consumers are generallt trying to downsize their purchases and lead simpler lives. 2. Last...
Why is there more than one theory for most behaviors of interest? –and- Is this a...
Why is there more than one theory for most behaviors of interest? –and- Is this a problem?
Why are organic carboxylates far more soluble in water than carboxylic acids ?
Why are organic carboxylates far more soluble in water than carboxylic acids ?
Explain the following phenomena using properties of Kahneman and Tversky's prospect theory as we’ve discussed it...
Explain the following phenomena using properties of Kahneman and Tversky's prospect theory as we’ve discussed it in class. Carefully state what is being evaluated, what is the reference point, what property of prospect theory explains the phenomenon, and why that property explains it. (a) Gamblers tend to bet more recklessly with money they have just won (and more generally, people tend to more easily spend money acquired easily or unexpectedly). This is commonly referred to as the “house money effect.”...
why is a sample used more often than a population
why is a sample used more often than a population
describe why percentage distributions are used in descriptive statistics and why are they more informative than...
describe why percentage distributions are used in descriptive statistics and why are they more informative than raw data
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT