Prospect theory sought to provide a descriptive model of risky choice which could accommodate a number of seemingly systematic violations of conventional ‘expected utility’ analysis. Although there are phenomena which the model cannot explain (even in its later ‘cumulative’ form), it constitutes a landmark in the development of alternative theories which have modified standard theory and/or have tried to incorporate psychological factors into decision theories.
Allais paradox Behavioural economics Choice Common consequence effect Common ratio effect Cumulative prospect theory Decision weights Expected utility hypothesis Isolation effect Kahneman, D. Probability distribution Prospect theory Rational behaviour Reference point Reflection effect Stochastic dominance Subjective probability Transitivity Tversky, A
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