Box 7.3 in your text talks about some real-world applications of prospect theory. The material presented there (p. 70) is a nice summary of the ideas presented in the chapter, and a good self-test for whether you “get” this particular set of ideas.
Reflect on this quote: “Diminishing sensitivity to successive losses means that the cost of the last bet is relatively trivial compared to what has already been spent” (p. 70).
Why should this be so? Explain that in your own words. And/or, given the fact that Las Vegas is open 24 hours a day (and the casinos have no clocks and no windows), WHEN should we expect the heaviest and most exciting betting action to occur in Vegas?
There must be an actual answer to this question too… but I’m wondering where your line of reasoning might take you on this one?
