Prospect Theory, developed by Daniel Kahneman and Amos Tversky, describes how people make decisions between alternatives that involve risk, where the probabilities of outcomes are known. It highlights that people value gains and losses differently, leading to irrational decision-making that deviates from expected utility theory.

Prospect Theory

Daniel Kahneman

Amos Tversky

Decision Making

alternatives that involve risk

probabilities of outcomes

Value of gains and losses

irrational decision-making

Expected Utility Theory is a fundamental concept in economics and decision theory that models how rational agents make choices under uncertainty by maximizing their expected utility. It assumes that individuals have consistent preferences and can assign a utility value to each possible outcome, allowing them to calculate the expected utility of different options and choose the one with the highest value.

expected utility theory

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Relevant Degrees

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