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 ?
While this might suggest a preference for greenfield start-ups associated with longer-term payoffs rather than acquisitions, prospect theory based arguments suggest otherwise.
Prospect theory attempts to explain these possibly irrational
Prospect theory highlights a number of elements of human psychology and cognition relevant to our topic.
Considering, then, that the EMH has not been sufficient to explain people's decisionmaking behavior, the theoretical scope involving Behavioral Finance, based on the development of Kahneman and Tversky's Prospect Theory (1979), signals that it is able to fill the gap left by Modern Finance Theory with regard to understanding phenomena that clash with the rational model.
This study examines the relationship between CEO incentive-based compensation and firm performance, based on the role of prospect theory in executive compensation.
net/) Prospect Theory that describes how people choose in situations that demand a decision between alternatives that involve risk.
To place that discussion in context, it is first necessary to discuss the cognitive biases most likely to be relevant to competition policy and to outline prospect theory, which plays a central role in behavioral economics.
Specifically, it fills a gap in the literature by integrating two relevant approaches of strategic management literature: prospect theory (Kahneman, Tversky 1979) and strategic reference point (SRP) theory (Fiegenbaum et al.
Mathematical equations are presented for modeling auction bids, risk aversion, bracketing decisions, intransitive preferences, prospect theory, procrastination, and hindsight bias.
140) The fundamental intuition behind the tax-morale concept is the Kahneman and Tversky prospect theory, which asserts that losses are more salient than gains.
However, unlike most other discrete multicriteria decision aiding methods the TODIM method is founded on Prospect Theory (Kahneman, Tversky 1979; Tversky, Kahneman 1992).