Prospect Theory


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Prospect Theory

A theory stating that investors are more likely to make an investment if it is advertised in terms of growth rather than loss. That is, an advertiser is more likely to be successful if he argues that an investment will probably return 10% than if he argues that it might lose 100%. Prospect theory is a fairly obvious concept, but it important to remember when making recommendations. See also: Behavioral Economics.
References in periodicals archive ?
Borrowing insights from institutional balancing theory and prospect theory helps examine China's two institutional balancing approaches in challenging the US-led international order.
We study populism as due to the reaction of disappointed voters who behave according to prospect theory.
In behavioral economics, prospect theory is offered as an alternative basis for rational choice in order to better predict the actual choices real people make.
Additionally, if aspirations are exceeded, this represents a gain situation, and from the perspective of prospect theory (Kahneman and Tversky 1979), decision makers may perceive less value in additional gains, thereby reducing managerial tolerance for risk (Greve 2003a).
It's like asking the bloke doon the paper shop to elaborate about "Kahneman and Tversky's economic Prospect Theory of An Analysis of Decision under Risk" cos he happens to sell the Financial Times.
Humans give more weight to negative factors compared to positive factor, as reflected by the prospect theory loss aversion ratio.
Best-selling author Michael Lewis (LiarAEs Poker, Moneyball, The Blind Side, Flash Boys) recounts the research that led to Prospect Theory and spawned the field of behavior economics and impacted other fields such as Big Data studies and professional athletics teams organization.
Prospect theory research postulates that the way information is framed, in terms of losses or gains, can affect people's decisions to protect their health.
As an alternative, a growing body of work on North Korean risk inclination (Cha 2002; Hwang 2006, 2009; Kim and Choy 2011) has incorporated the thesis of reference dependence and loss aversion advanced by prospect theory (Jervis 1992; Kahneman and Tversky 1979; Levy 1997; Vertzberger 1995).
See also: Selling LTCI smarter: Prospect theory Many insurers and government officials have assumed that consumers have been slow to buy LTCI because of a lack of awareness of LTC costs and LTCI products, Pincus said.
For instance, prospect theory states that people's happiness increases as their wealth increases, but at a decreasing rate.
The psychologist Daniel Kahneman won a Nobel Prize for the creation of prospect theory, which says - among other things - that people measure outcomes relative to a reference point.