Prospect Theory: An Analysis of Decision Under Risk

Author: Daniel Kahneman and Amos Tversky

This paper presents a critique of expected utility theory as a descriptive model of decision making under risk, and develops an alternative model, called prospect theory. Choices among risky prospects exhibit several pervasive effects that are inconsistent with the basic tenets of utility theory. In particular, people underweight outcomes that are merely probable in comparison with outcomes that are obtained with certainty.



Kahneman, D. & Tversky, A. 1979 'Prospect Theory: An Analysis of Decision Under Risk' in Econometrica (Mar 79, Vol. 47, No. 2), The Econometric Society, pp. 263-291
Source: http://www.its.caltech.edu/~camerer/Ec101/Pro...

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