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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 .
The framing effect is a cognitive bias in which people decide between options based on whether the options are presented with positive or negative connotations. [1] Individuals have a tendency to make risk-avoidant choices when options are positively framed, while selecting more loss-avoidant options when presented with a negative frame.
The certainty effect is the psychological effect resulting from the reduction of probability from certain to probable (Tversky & Kahneman 1986). It is an idea introduced in prospect theory .
Tversky and Kahneman [75] suggest that the anchoring effect is the product of anchoring and adjustment heuristics whereby estimates are made starting from an anchor value which is then adjusted in until the individual has reached an answer. Kahneman suggests that anchoring occurs from derivations from anchor-consistent knowledge.
In line with prospect theory (Tversky and Kahneman, 1979 [24]), changes that are framed as losses are weighed more heavily than are the changes framed as gains. Thus an individual owning "A" amount of a good, asked how much he/she would be willing to pay to acquire "B", would be willing to pay a value (B-A) that is lower than the value that he ...
In 1979, Daniel Kahneman and Amos Tversky traced the cause of the disposition effect to the so-called "prospect theory". [3] The prospect theory proposes that when an individual is presented with two equal choices, one having possible gains and the other with possible losses, the individual is more likely to opt for the former choice even ...
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.
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 ]