- prospect theory
- prospect theory
Prospect theory is utilized to make decisions that involve risks or gambles.
This theory was developed in 1979 as a solution to the shortfalls and
contradictions that were found in expected utility theory in certain situations.
One of the most significant aspects of prospect theory is the suggestion that
individuals avoid risk when they perceive their current prospects or situation
to be positive (a gain decision domain), and individuals seek risk when they
perceive the current prospects or situation to be negative (a loss decision
domain). Additionally, the theory shows that individuals make decisions based on
shifts in wealth versus total wealth itself. This shift in wealth becomes the
reference point from where any new decisions are made.
more
source:
York University
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