Behavioural Finance 146589

| November 13, 2015

QUESTION 1.

 

Consider a person with the following value function under prospect theory:

v(w) = w.5               if w

 

0

=  -2(-w).5        if w < 0

 

Is this individual loss averse? Explain

 

Assume that this individual weights values by probabilities, instead of using prospect theory weighting function. Which of the following prospects would be preferred?

P1(.8, 1000, -800)

P2(.7, 1200, -600)

P3(.5, 2000,-1000)

 

Note: Points will be taken off for responses that lack organization and order.

Grade: 25

 

QUESTION 2.

 

“Since capital budgeting decisions involve the estimation of a project’s future cash flows and the rate at which they should be discounted is still a relatively subjective process, the behavioral traits of managers still affect this process.” Discuss this statement and suggest how managers can better improve their ability to eliminate biases in their forecasting.

 

.

Note: Points will be taken off for write-ups that lack organization and order.

Maximum pages: 2-3 pages, double-space, size 12.

Grade: 25

Get a 5 % discount on an order above $ 150
Use the following coupon code :
2018DISC
Homework Set #5 136260
I need help with this finance homework. I need to see all 12416

Category: Homework Help

Our Services:
Order a customized paper today!