Enhance Your Learning with Economics - Prospect Theory Flash Cards for quick understanding
A behavioral economic theory that describes how individuals make decisions under uncertainty, focusing on the psychological factors that influence decision-making.
The process of making choices when the outcomes are uncertain, and individuals have incomplete information about the probabilities of different outcomes.
The tendency for individuals to prefer avoiding losses over acquiring equivalent gains, leading to risk-averse behavior and irrational decision-making.
The influence of the way information is presented (framed) on individuals' decisions and judgments, even when the underlying content is the same.
A comparison between Prospect Theory and Expected Utility Theory, highlighting the differences in how they model decision-making under uncertainty and incorporate psychological biases.
The practical implications and real-world applications of Prospect Theory in various fields, such as finance, marketing, and public policy.
The criticisms and limitations of Prospect Theory, including its reliance on subjective judgments, limited scope, and challenges in empirical testing.
The experimental studies and empirical evidence that support and validate the predictions and insights of Prospect Theory.
A field of study that combines insights from psychology and economics to understand and explain deviations from rational decision-making in real-world economic behavior.
The tendency for individuals to value an item they own more than an identical item they do not own, leading to irrational behavior in economic transactions.
The idea that individuals evaluate outcomes relative to a reference point, such as their current wealth or status quo, influencing their perception of gains and losses.
The phenomenon where individuals overweight small probabilities and underweight large probabilities when making decisions under uncertainty, leading to risk-seeking or risk-averse behavior.
The tendency for individuals to overweight outcomes that are certain compared to outcomes that are merely probable, leading to risk-averse behavior in the domain of gains and risk-seeking behavior in the domain of losses.
The observation that individuals tend to be risk-averse when facing gains and risk-seeking when facing losses, reflecting a departure from expected utility theory.
The tendency for individuals to continue investing resources into a project or decision based on the cumulative costs already incurred, even when the future benefits are unlikely or negative.
The cognitive process where individuals categorize and evaluate economic outcomes separately, leading to irrational behavior in financial decision-making.
The mental shortcut where individuals make judgments and decisions based on the ease with which examples or instances come to mind, often leading to biased and inaccurate assessments.
The tendency for individuals to be influenced by the way information is presented (framed), leading to different decisions or preferences based on the framing of the same information.
The cognitive bias where individuals rely heavily on an initial piece of information (the anchor) and make adjustments from that anchor when making judgments or estimates.
The psychological phenomenon where losses have a greater impact on individuals' well-being and decision-making compared to equivalent gains, leading to risk-averse behavior and loss aversion.
The S-shaped value function in Prospect Theory that describes how individuals perceive and evaluate gains and losses, showing diminishing sensitivity to changes in magnitude.
The way in which risk is presented or framed, influencing individuals' risk preferences and decisions, even when the underlying probabilities and outcomes are the same.
The reversal of the endowment effect, where individuals value an item more when they do not own it compared to when they own it, challenging the traditional understanding of ownership and valuation.
The tendency for individuals to prefer the current state of affairs (status quo) and resist change, even when the alternative options may be objectively better.
The way in which time is presented or framed, influencing individuals' decisions and preferences related to future outcomes and intertemporal choices.
The reversal of the certainty effect, where individuals become risk-seeking for certain gains and risk-averse for certain losses, challenging the predictions of expected utility theory.
The inverse S-shaped probability weighting function in Prospect Theory that describes how individuals distort probabilities when making decisions under uncertainty, overweighting small probabilities and underweighting large probabilities.
The way in which social norms and expectations are presented or framed, influencing individuals' behavior and decisions in social and economic contexts.
An extension of Prospect Theory that incorporates the emotion of regret into decision-making, focusing on the anticipation and avoidance of regret in choices.
The cognitive model that distinguishes between two decision-making systems: the intuitive, automatic system (System 1) and the deliberative, reflective system (System 2).
The way in which effort is presented or framed, influencing individuals' motivation, willingness to exert effort, and perception of the value of rewards.
The asymmetry in individuals' responses to gains and losses, where losses have a greater psychological impact than equivalent gains, leading to risk-averse behavior and loss aversion.
The interdisciplinary field that combines neuroscience and economics to study the neural mechanisms underlying decision-making and the psychological biases described by Prospect Theory.
The way in which social identity and group membership are presented or framed, influencing individuals' behavior, attitudes, and decisions in social and economic contexts.
The baseline or reference point against which individuals evaluate gains and losses, influencing their perception of outcomes and the shape of the value function in Prospect Theory.
The way in which incentives and rewards are presented or framed, influencing individuals' motivation, effort, and decision-making in economic and organizational settings.
The observation that individuals exhibit diminishing sensitivity to changes in magnitude, perceiving smaller changes in outcomes as relatively larger when they are near the reference point.
The way in which fairness and equity are presented or framed, influencing individuals' perceptions of fairness, cooperation, and distributive justice in economic and social interactions.
The distortion of probabilities in individuals' decision-making, where small probabilities are overweighted and large probabilities are underweighted, leading to risk-seeking or risk-averse behavior.
The way in which trust and trustworthiness are presented or framed, influencing individuals' trust-related decisions, cooperation, and social interactions.
The observation that individuals exhibit risk-averse behavior for gains and risk-seeking behavior for losses when the outcomes are certain, deviating from the predictions of expected utility theory.
The way in which health risks and medical information are presented or framed, influencing individuals' perceptions, decisions, and behaviors related to health and healthcare choices.
The tendency for individuals to exhibit risk-averse behavior when facing gains and risk-seeking behavior when facing losses, reflecting a departure from the predictions of expected utility theory.
The way in which climate change and environmental issues are presented or framed, influencing individuals' attitudes, beliefs, and actions related to climate change mitigation and adaptation.
The cognitive process where individuals categorize and evaluate economic outcomes separately, leading to irrational behavior in financial decision-making and the allocation of resources.
The way in which charitable donations and philanthropic appeals are presented or framed, influencing individuals' willingness to donate, the amount donated, and the choice of charitable causes.
The reliance on the availability heuristic in individuals' decision-making, where judgments and decisions are based on the ease with which examples or instances come to mind, often leading to biased assessments.
The way in which economic inequality and income disparities are presented or framed, influencing individuals' perceptions, attitudes, and support for policies addressing inequality.
The bias in individuals' decision-making due to the way information is presented or framed, leading to different decisions or preferences based on the framing of the same information.
The way in which retirement savings and pension plans are presented or framed, influencing individuals' savings behavior, investment choices, and retirement planning.
The cognitive bias where individuals rely heavily on an initial piece of information (the anchor) and make adjustments from that anchor when making judgments, estimates, or decisions.
The way in which consumer choices and product attributes are presented or framed, influencing individuals' preferences, purchase decisions, and consumer behavior.
The psychological phenomenon where losses have a greater impact on individuals' well-being and decision-making compared to equivalent gains, leading to risk-averse behavior and loss aversion.
The way in which investment risks and financial information are presented or framed, influencing individuals' risk perceptions, investment decisions, and portfolio choices.
The tendency for individuals to value an item they own more than an identical item they do not own, leading to irrational behavior in economic transactions and the valuation of assets.
The way in which political messages and campaign rhetoric are presented or framed, influencing individuals' attitudes, beliefs, and voting behavior in political elections and campaigns.
The idea that individuals evaluate outcomes relative to a reference point, such as their current wealth or status quo, influencing their perception of gains and losses and the shape of the value function.
The way in which advertising appeals and marketing messages are presented or framed, influencing individuals' attitudes, preferences, and purchase intentions for products and services.