Prospect Theory (Kahneman & Tversky)


Mind Map on Prospect Theory (Kahneman & Tversky), created by Douglas Sayers on 01/06/2014.
Mind Map by Douglas Sayers, updated more than 1 year ago
Created by Douglas Sayers over 9 years ago

Resource summary

Prospect Theory (Kahneman & Tversky)
  1. Differs from EUT - attitudes to risk not constant
    1. Mental Accounting
      1. Framing
      2. Evaluate gains or losses relative to reference point
        1. Loss aversion
          1. One unit monetary loss more impact on utility than monetary gain
          2. Risk seeking over losses & risk averse over gains
            1. Utility gained/lost from realisation
              1. Disposition effect
              2. Gains = Concave, Losses = Convex
                1. Two Stages
                  1. Editing
                    1. Coding prospects positive or negative, combine identical components, eliminate riskless components, and simplify complex prospects into more manageable
                    2. Evaluation
                      1. Evaluates all outcomes via 'value function' displayed in graph below

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