Consider an investor who faces a decision whether or not to make an in- vestment of 10 000 rubles. The investor’s preferences with respect to gains…

a) Calculate the values of the probability weighting function w(p).

b) Calculate the expected prospect theory return from investment.

c) Determine whether or not the investor is likely to make the investment.

Consider an investor who faces a decision whether or not to make an in- vestment of 10 000 rubles. The investor‘s preferences with respect to gains and losses are represented byavaluefunction ofthe following form: {2A}: format) SAx for At <1 0 vax‘t = The investor’s probability weighting function is rfl’ (we —2,1;’)W W60) = where the perception bias 1» equals 0.5. The returns from the investment {in % of the initialinvestment of 10 000 rublesD and their probabilities of occurrence p are given in thefollowing table:

 
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