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Explain the main tenets of prospect theory
“Prospect Theory is a behavioral model that shows how people decide between alternatives that involve risk and uncertainty (example percent likelihood of gains or losses). It demonstrates that people think in terms of the expected utility relative to a ‘reference point’ rather than absolute outcomes”. In the light of the above statement, explain the main tenets of prospect theory. Use examples, graphs, charts to substantiate your answer. Suggested length of the answer is 2 pages Discuss how prospect theory of behavior is applied in diverse economic and financial settings such as consumption choices, financial investments, insurance etc. Suggested length of the answer is 2 pages

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