Prospect Theory: Difference between revisions
From Dickinson College Wiki
Jump to navigationJump to search
No edit summary |
No edit summary |
||
| Line 6: | Line 6: | ||
Candidates were given the two following choices: | Candidates were given the two following choices: | ||
25% chance of winning $3,000 | 25% chance of winning $3,000 and | ||
20% chance of winning $4,000 | 20% chance of winning $4,000 | ||
| Line 14: | Line 13: | ||
But | But | ||
100% chance of winning $3,000 and 80% chance of winning $4,000 | 100% chance of winning $3,000 and | ||
80% chance of winning $4,000 | |||
80% chose former | 80% chose former | ||
Revision as of 15:26, 9 May 2006
Prospect Theory is a mathematically-formulated alternative to the theory of expected utility maximization.
Expected Utility theory is based on rational behavior of agents and yet has "systematically mispredicted human behavior in at least certain circumstances." (Schiller, 1997)
For instance, Kahneman and Tversky's (1979) lottery experiment.
Candidates were given the two following choices:
25% chance of winning $3,000 and 20% chance of winning $4,000
65% chose latter
But
100% chance of winning $3,000 and 80% chance of winning $4,000
80% chose former
Prospect Theory similar to Expected Utility Theory in that
Thus, model used zeroing and "one-ing"
