Question

miguel could gamble four quarters in a carnival game, with the potential to win as many as 20 quarters. however, the possibility that he might end up with no quarters at all leads miguel to choose not to play. miguel's decision illustrates

Answer 1

Due to the possibility that Miguel might end up with no quarters at all, his decision not to play illustrates loss aversion.

• Loss aversion simply means the tendency for people to avoid loss in order to have equivalent gains.

• In this case, due to fear of a loss, an individual may prefer to continue holding on to a certain amount of money rather than investing it or using it for something that could bring about profit.

• Since Miguel could potentially win some amount of money in gambling but he's afraid of the fact that he could lose as well and decides to keep his money, this is loss aversion.

In conclusion, loss aversion takes place in order to avoid financial risk.

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