ARC: Research: Theories: Prospect
Overview
The two basic premises of prospect theory are that the disutility of a loss exceeds the utility from a comparatively sized gain, and that differences, contrast or changes are more salient than absolute values. These premises imply that the standard economic theory of rational choice is wrong.
PowerPoint Slides for This Theory - AMA Members Only.
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Key Citations
Kahneman, Daniel and Amos Tversky (1979), "Prospect Theory: An Analysis of Decision under Risk," Econometrica, 47 (2), 263-291.
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Application Areas
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Other Literature
Hardie, Bruce, Eric J. Johnson, and Peter S. Fader (1993), "Modeling Loss Aversion and Reference Dependence Effects," Marketing Science, 12 (4), 378-394.
Tversky, Amos and Daniel Kahneman (1991), "Loss Aversion in Riskless Choice: A Reference-Dependent Model," Quarterly Journal of Economics, 106 (4), 1039-1062.
Suggest other literature by sending email to arc@ama.org.