Initially, the asset manager presented Statement 1 to John and John decided to take on Investment A. Subsequently, the equity analyst presented Statement 2 to John and John changed his mind about investing in Investment A. Statement 1: Investment A gives E(R)=10% and a standard deviation of 20%. Statement 2: Investment A gives E(R)=10% and has a 2.5% chance of generating -30% or worse. Which of the following statements is FALSE? (A) John suffers from loss aversion (B) Framing affects how John makes his decision (C) John is a mean-variance optimizer (D) John has bounded rationality

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Initially, the asset manager presented Statement 1 to John and John decided to take on
Investment A. Subsequently, the equity analyst presented Statement 2 to John and John
changed his mind about investing in Investment A.
Statement 1: Investment A gives E(R)=10% and a standard deviation of 20%.
●
Statement 2: Investment A gives E(R)=10% and has a 2.5% chance of generating -30% or
worse.
Which of the following statements is FALSE?
(A) John suffers from loss aversion
(B) Framing affects how John makes his decision
(C) John is a mean-variance optimizer
(D) John has bounded rationality
Transcribed Image Text:Initially, the asset manager presented Statement 1 to John and John decided to take on Investment A. Subsequently, the equity analyst presented Statement 2 to John and John changed his mind about investing in Investment A. Statement 1: Investment A gives E(R)=10% and a standard deviation of 20%. ● Statement 2: Investment A gives E(R)=10% and has a 2.5% chance of generating -30% or worse. Which of the following statements is FALSE? (A) John suffers from loss aversion (B) Framing affects how John makes his decision (C) John is a mean-variance optimizer (D) John has bounded rationality
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