Prospect Theory and Decision-Making Phenomena
Prospect theory, proposed by Kahneman and Tversky (1979) (Tversky and Kahneman 1992), is a theory that combines the knowledge of behavioral decision theory and nonlinear utility theory (or generalized expected utility theory). This chapter first reports the forecasts derived from the basic assumptions of prospect theory and empirical examples of such forecasts. It subsequently provides an overview of a new version of cumulative prospect theory that explains decision-making not only under risk but also under uncertainty and in light of experimental research into this theory.
KeywordsCondition Group Test Subject Utility Theory Prospect Theory Loss Aversion
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