Question

Last month Laura saw the value of her stock portfolio rise by $20,000. This month sho saw the value of her portfolio decline by $20,000.

According to behavioral economics:

A) the positive utility Laura received from seeing her portfolio value rise was equal to the disutility she felt when its value declined.
B) Laura should not invest in stocks unless the utility she receives from gains is at least as great as the disutility she feels from losses.
C) the positive utility Laura received from seeing her portfolio value rise was greater than the disutility she felt when its value declined.
D) the positive utility Laura received from seeing her portfolio value rise was less than the disutility she felt when its value declined.

Answer 1

The correct option is D: the positive utility Laura received from seeing her portfolio value rise was less than the disutility she felt when its value declined.

Step-by-step explanation:

Behavioral economics suggests that the pain felt when you lose $1000 is more than the joy you experience when you gain $1000 say in a lottery or any exercise without having to do any work from it. Thus this implies that positive utility is less than disutility in the case of Laura as depicted in the example.