Prospect Theory¶
Kahneman, D., & Tversky, A. (1979). Prospect Theory: An Analysis of Decision under Risk. Econometrica, 47(2), 263-291.
Cited by¶
18 citations across 18 artifacts.
Each citation links to the sentence it supports in the citing article.
Primes¶
- Contrast
- Kahneman and Tversky (1979), in their prospect theory, established that decision-makers evaluate outcomes as gains and losses relative to a reference point rather than in absolute terms — making the choice of baseline (and thus the contrast it sets up with the treatment) a constitutive feature of how an effect is perceived and acted on, in A/B tests as in everyday economic judgment.
This sourceOutcomes are evaluated as gains and losses relative to a reference point rather than in absolute terms (diminishing sensitivity, loss aversion) — supports the claim that the choice of baseline, and the contrast it creates with the treatment, is constitutive of perceived value and decision behavior. Vol./pages verified.
- Kahneman and Tversky (1979), in their prospect theory, established that decision-makers evaluate outcomes as gains and losses relative to a reference point rather than in absolute terms — making the choice of baseline (and thus the contrast it sets up with the treatment) a constitutive feature of how an effect is perceived and acted on, in A/B tests as in everyday economic judgment.
- Decision
- Decision theory & behavioral economics: Expected utility, subjective expected utility (SEU), Bayesian decision theory, loss aversion, status quo bias, anchoring, availability heuristic, framing effects, preference reversals, revealed vs. stated preference, discrete-choice models — a behavioral catalogue Kahneman and Tversky (1979) anchored in their prospect-theory critique of expected utility.
This sourceCritiques expected-utility theory and develops prospect theory (reference-dependence, diminishing sensitivity, loss aversion).
- Decision theory & behavioral economics: Expected utility, subjective expected utility (SEU), Bayesian decision theory, loss aversion, status quo bias, anchoring, availability heuristic, framing effects, preference reversals, revealed vs. stated preference, discrete-choice models — a behavioral catalogue Kahneman and Tversky (1979) anchored in their prospect-theory critique of expected utility.
- Escalation of Commitment
- the distinction between decision-makers who bear direct consequences of escalation (agents) and those who bear remote consequences or political/reputational consequences (principals); (i) recognition of the loss-frame entrapment
This sourceFoundational result: outcomes evaluated as gains/losses relative to a reference point, with loss aversion and risk-seeking over losses.
- the distinction between decision-makers who bear direct consequences of escalation (agents) and those who bear remote consequences or political/reputational consequences (principals); (i) recognition of the loss-frame entrapment
- Expected Utility
- Behavioral economics measures human deviations from this baseline, with prospect theory (Kahneman & Tversky 1979) reformulating the value transform around a reference point and replacing probabilities with decision weights.
This sourceFoundational behavioral-economics result: outcomes evaluated as gains and losses relative to a reference point, with diminishing sensitivity and loss aversion, and probabilities replaced by decision weights (overweighting small probabilities).
- Behavioral economics measures human deviations from this baseline, with prospect theory (Kahneman & Tversky 1979) reformulating the value transform around a reference point and replacing probabilities with decision weights.
- Framing
- This foundational evidence, coupled with prospect theory,
This sourceFoundational result that outcomes are valued as gains and losses relative to a reference point, with diminishing sensitivity and loss aversion; substantiates the reference-point dependence and loss-aversion claims framing rests on.
- This foundational evidence, coupled with prospect theory,
- Indifference Curves
- T3 — Behavioral Departures From Standard Preferences: Endowment effects, loss aversion (Kahneman-Tversky 1979)
This sourceFoundational behavioral-economics result: outcomes are evaluated as gains and losses relative to a reference point rather than in absolute terms, with diminishing sensitivity and loss aversion — making the choice of baseline (and the contrast it creates with the treatment) constitutive of perceived value and decision behavior.
- T3 — Behavioral Departures From Standard Preferences: Endowment effects, loss aversion (Kahneman-Tversky 1979)
- Loss Aversion
- This functional form, introduced by Kahneman and Tversky (1979)
This sourceFoundational behavioral-economics result: outcomes are evaluated as gains and losses relative to a reference point rather than in absolute terms, with diminishing sensitivity and loss aversion — making the choice of baseline (and the contrast it creates with the treatment) constitutive of perceived value and decision behavior.
- This functional form, introduced by Kahneman and Tversky (1979)
- Marginal Utility
- A concave utility function (negative second derivative, diminishing marginal utility) implies risk aversion: the agent prefers a sure amount to a lottery with the same expected value. Prospect theory, introduced by Kahneman and Tversky (1979)
This sourceFoundational behavioral-economics result: outcomes are evaluated as gains and losses relative to a reference point rather than in absolute terms, with diminishing sensitivity and loss aversion — making the choice of baseline (and the contrast it creates with the treatment) constitutive of perceived value and decision behavior.
- A concave utility function (negative second derivative, diminishing marginal utility) implies risk aversion: the agent prefers a sure amount to a lottery with the same expected value. Prospect theory, introduced by Kahneman and Tversky (1979)
- Optimism Bias
- Paradox
- … Allais paradox (observed choice patterns violate independence axiom); Ellsberg paradox (ambiguity aversion); Arrow's theorem revealing paradoxes of social choice (no voting system satisfies all desirable properties simultaneously); money-pump arguments against intransitive preferences; resolution via prospect theory
This sourceFoundational behavioral-economics result: outcomes are evaluated as gains and losses relative to a reference point rather than in absolute terms, with diminishing sensitivity and loss aversion — making the choice of baseline (and the contrast it creates with the treatment) constitutive of perceived value and decision behavior.
- … Allais paradox (observed choice patterns violate independence axiom); Ellsberg paradox (ambiguity aversion); Arrow's theorem revealing paradoxes of social choice (no voting system satisfies all desirable properties simultaneously); money-pump arguments against intransitive preferences; resolution via prospect theory
- Preference
- Each presupposes the bare preference relation and adds structured deviations from the linear-in-magnitudes baseline.
This sourceFoundational behavioral-economics result: outcomes are evaluated as gains and losses relative to a reference point rather than in absolute terms, with diminishing sensitivity and loss aversion — making the choice of baseline (and the contrast it creates with the treatment) constitutive of perceived value and decision behavior.
- Each presupposes the bare preference relation and adds structured deviations from the linear-in-magnitudes baseline.
- Reference-Point Dependence
- The identifying claim concerns a second variable that ordinary talk about outcomes does not carry: leave the outcome exactly where it is, move the reference alone, and the same state is reclassified — gain to loss, improvement to deterioration, adequate to failing — with nothing about the world having changed.
This sourceEstablishes that outcomes are evaluated as gains and losses against a movable reference point rather than as final states.
- The identifying claim concerns a second variable that ordinary talk about outcomes does not carry: leave the outcome exactly where it is, move the reference alone, and the same state is reclassified — gain to loss, improvement to deterioration, adequate to failing — with nothing about the world having changed.
- Risk Aversion
- Risk–Return Tradeoff
- However, Kahneman-Tversky
This sourceFoundational behavioral-economics result: outcomes are evaluated as gains and losses relative to a reference point rather than in absolute terms, with diminishing sensitivity and loss aversion — making the choice of baseline (and the contrast it creates with the treatment) constitutive of perceived value and decision behavior.
- However, Kahneman-Tversky
- Sunk Cost and Irreversible Commitment
- The magnitude of committed resources (time, money, emotional investment, organizational capital) creates an asymmetry: reversal feels costly and loss-laden, even when rational analysis shows the investment is already gone and irrelevant to forward-looking decisions, an asymmetry rooted in the value-function curvature Kahneman and Tversky (1979) formalized in prospect theory.
This sourceFoundational behavioral-economics result: outcomes are evaluated as gains and losses relative to a reference point rather than in absolute terms, with diminishing sensitivity and loss aversion — making the choice of baseline (and the contrast it creates with the treatment) constitutive of perceived value and decision behavior.
- The magnitude of committed resources (time, money, emotional investment, organizational capital) creates an asymmetry: reversal feels costly and loss-laden, even when rational analysis shows the investment is already gone and irrelevant to forward-looking decisions, an asymmetry rooted in the value-function curvature Kahneman and Tversky (1979) formalized in prospect theory.
- Uncertainty
- The Ellsberg paradox
This sourceFoundational behavioral-economics result: outcomes are evaluated as gains and losses relative to a reference point rather than in absolute terms, with diminishing sensitivity and loss aversion — making the choice of baseline (and the contrast it creates with the treatment) constitutive of perceived value and decision behavior.
- The Ellsberg paradox
Domain-specific¶
- Cumulative Prospect Theory
- Probability Weighting Function
- A chooser prefers a sure outcome to a slightly larger outcome with very high probability, yet reverses the preference when both probabilities are scaled down proportionally
This sourceKahneman and Tversky's Problems 3 and 4, where 80 percent chose 3,000 for certain over 4,000 at p = .80 while 65 percent reversed to 4,000 at p = .20 over 3,000 at p = .25 - the common-ratio reversal exactly as described.
- A chooser prefers a sure outcome to a slightly larger outcome with very high probability, yet reverses the preference when both probabilities are scaled down proportionally
Verification¶
This reference passed the adversarial substantiation pipeline: it was checked to exist and to support the claim it is attached to. See how references were verified.
Links previously used in the corpus¶
Before the registry existed this work was also linked 1 other way.
Registry ID ref:48160eef6b02 · see in the full table