White Paper on Prospect Theory
Based off of the scenario below, prepare a professional 3-4 page ‘white paper’, double-space, Times New Roman 12 point font; reference page(s) do not count in the page limit.?? In your report be sure to include the following topics: 1) Prospect theory vs. expected utility theory, 2) A numeric example demonstrating violations of expected utility theory, 3) Description of the value function, 4) Implications of prospect theory (or behavioral finance) for the Efficient Market Hypothesis, and 5) An example of an anomaly that could be explained by prospect theory.
Scenario: Prospect Theory
“We really want to help clients make better decisions,” said Stephanie Jones, senior consultant at Shefrain Consulting, LLC, “and if we understand their biases and tendencies in making choices, it helps us be better consultants.”
Stephanie continues, “I noticed you graduated from South Carolina State University and took a class in behavioral finance.”
You respond in the affirmative.? “We have a lot of new consultants that are unfamiliar with the core foundations of behavioral economics…” Stephanie’s Samsung Galaxy S6 Edge interrupts her as she ducks around the corner to take a client’s call.?? When Miss Jones returns, she seems on edge as it’s been a volatile day on Wall Street.? She asks you to prepare a ‘white paper’ on Prospect Theory and its behavioral foundations.? You agree and head to your corner office to get to work on the ‘white paper’.? After a frustrating morning of writing you come across a Dropbox folder with some of your old SCSU notes and resources.?