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Prospect theory is a theory of behavioral economics, judgment and decision making that was developed by Daniel Kahneman and Amos Tversky in 1979. [1] The theory was cited in the decision to award Kahneman the 2002 Nobel Memorial Prize in Economics .
Daniel Kahneman (/ ˈ k ɑː n ə m ə n /; Hebrew: דניאל כהנמן; March 5, 1934 – March 27, 2024) was an Israeli-American psychologist best known for his work on the psychology of judgment and decision-making as well as behavioral economics, for which he was awarded the 2002 Nobel Memorial Prize in Economic Sciences together with Vernon L. Smith.
The pseudocertainty effect was illustrated by Daniel Kahneman, who received the Nobel Prize in economics for his work on decision making and decision theory, in collaboration with Amos Tversky. The studies that they researched used real and hypothetical monetary gambles and were often used in undergraduate classrooms and laboratories. [1]
In 1979, Daniel Kahneman and his associate Amos Tversky originally coined the term "loss aversion" in their initial proposal of prospect theory as an alternative descriptive model of decision making under risk. [5] "The response to losses is stronger than the response to corresponding gains" is Kahneman's definition of loss aversion.
Tversky, as a co-recipient with Daniel Kahneman, earned the 2003 University of Louisville Grawemeyer Award for Psychology. [15] After Tversky's death, Kahneman was awarded the 2002 Nobel Memorial Prize in Economic Sciences for the work he did in collaboration with Tversky. Nobel prizes are not awarded posthumously.
It is an idea introduced in prospect theory. Normally a reduction in the probability of winning a reward (e.g., a reduction from 80% to 20% in the chance of winning a reward) creates a psychological effect such as displeasure to individuals, which leads to the perception of loss from the original probability thus favoring a risk-averse decision.
In behavioral economics, cumulative prospect theory (CPT) is a model for descriptive decisions under risk and uncertainty which was introduced by Amos Tversky and Daniel Kahneman in 1992 (Tversky, Kahneman, 1992). It is a further development and variant of prospect theory.
It is one of a group of heuristics (simple rules governing judgment or decision-making) proposed by psychologists Amos Tversky and Daniel Kahneman in the early 1970s as "the degree to which [an event] (i) is similar in essential characteristics to its parent population, and (ii) reflects the salient features of the process by which it is ...