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    Question

    Which of the following theory says that investors value

    gains and losses differently, placing more weight on perceived gains versus perceived losses?
    A Bounded rationality theory Correct Answer Incorrect Answer
    B Behavioural theory Correct Answer Incorrect Answer
    C Prospect theory Correct Answer Incorrect Answer
    D Satisficing theory Correct Answer Incorrect Answer
    E Normative theory Correct Answer Incorrect Answer

    Solution

    The Prospect theory was introduced by two psychologists, Daniel Kahneman, and Amos Tversky. As per the theory, given the choice of equal probabilities, most people would choose to retain the wealth that they already have, rather than risk the chance to increase their current wealth. People are usually averse to the possibility of losing, such that they would rather avoid a loss rather than take a risk to make an equivalent gain. It is a psychology theory that describes how people make decisions when presented with alternatives that involve risk, probability, and uncertainty. It holds that people make decisions based on perceived losses or gains

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