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To see how prospect theory can be applied, consider the decision to buy insurance. Assume the probability of the insured risk is 1%, the potential loss is $1,000 and the premium is $15. If we apply prospect theory, we first need to set a reference point. This could be the current wealth or the worst case (losing $1,000).
The theory of subjective expected utility combines two concepts: first, a personal utility function, and second, a personal probability distribution (usually based on Bayesian probability theory). This theoretical model has been known for its clear and elegant structure and is considered by some researchers to be "the most brilliant axiomatic ...
Theories of political behavior, as an aspect of political science, attempt to quantify and explain the influences that define a person's political views, ideology, and levels of political participation, especially in relation to the role of politicians and their impact on public opinion .
In 1976, Macpherson was criticized from some on both the left and the right.In response, he claimed that what he had always been trying to do was to "work out a revision of liberal-democratic theory, a revision that clearly owed a great deal to [Karl] Marx, in the hope of making that theory more democratic while rescuing that valuable part of the liberal tradition which is submerged when ...
Framing theory and frame analysis provide a broad theoretical approach that analysts have used in communication studies, news (Johnson-Cartee, 1995), politics, and social movements (among other applications). According to Bert Klandermans, the "social construction of collective action frames" involves "public discourse, that is, the interface ...
The main modification to prospect theory is that, as in rank-dependent expected utility theory, cumulative probabilities are transformed, rather than the probabilities themselves. This leads to the aforementioned overweighting of extreme events which occur with small probability, rather than to an overweighting of all small probability events.
They go on to suggest that the endowment effect, when considered as a facet of loss-aversion, would thus violate the Coase theorem, and was described as inconsistent with standard economic theory which asserts that a person's willingness to pay (WTP) for a good should be equal to their willingness to accept (WTA) compensation to be deprived of ...
The concept helps to develop an understanding of frame analysis within social movements, and also in the formation of political opinion where spin plays a large role in political opinion polls that are framed to encourage a response beneficial to the organization that has commissioned the poll.