What is everyone's view on Prospect Theory?

Prospect Theory states that we make risky decisions based on a lottery, i.e. we consider the potential gains and losses of a decision. We set a reference point for a particular decision - if outcomes go below this reference point, we see it as a loss; if outcomes go above this reference point, we see it as a gain. Such evaluations help us make risky decisions.

Are our decisions really so 'neat' and logical?

Nicola

My views

-Prospect theory is correct
-some decisions may seem illogical by material/superficial prospects but you have to factor in emotion (which is the correct way to do it)
-if you factor in emotion and states of mind then ofc it is logical (this doesnt mean efficient btw)

Thanks for the response. I first read about Prospect Theory in relation to health and making risking decision regarding treatments that could result in loss or gain to health/life years. For example, would someone with an illness that affects their daily life (e.g. tinnitus) decide to have a treatment that would ultimately improve their health and quality of life, but result in a loss of life years.

yes - and that is where emotion and perspective is brought into it. cause some people may fear death like shit but others wanna live hard /die fast.

I agree with Prospect theory, as I think it is as simple as pros cons decision. But of course it varies with the perspective of the individual, and emotion always factors into the decisions, usually irrationally.

I agree with Prospect theory, as I think it is as simple as pros cons decision. But of course it varies with the perspective of the individual, and emotion always factors into the decisions, usually irrationally.

but another major point of the theory is that everyone works rationally to themselves that this is the only way to be rational.

if you havent read at least a few mopre of the basic principles that it covers (other than the one posted) i would suggest you don't jump in with both your feet.

but another major point of the theory is that everyone works rationally to themselves that this is the only way to be rational.
Rational to themselves at the time. Irrational later on.

if you havent read at least a few mopre of the basic principles that it covers (other than the one posted) i would suggest you don't jump in with both your feet.[/QUOTE]

How can I jump in with one foot (continue the metaphor) :D And wouldn't I jump further with one foot?

but another major point of the theory is that everyone works rationally to themselves that this is the only way to be rational.

if you havent read at least a few mopre of the basic principles that it covers (other than the one posted) i would suggest you don't jump in with both your feet.

I agree with Prospect theory, as I think it is as simple as pros cons decision. But of course it varies with the perspective of the individual, and emotion always factors into the decisions, usually irrationally.

The decision itself must be rational at the time to be made, but others and yourself later on.
I mean emotions change the norm of their lottery limits, causing a decision in the boundary of a loss to a gain.

the point is its not irrational there. if they hadnt made that decision based on their emotions then all soorts of problems can happen - ie. splitting up a marriage because u love one oof them (if you had no emotion involved in the decision you would leave the couple alone and do something else - many people would see this as the traditional "rational" however if you factor in emotion after the decision you may not be able to live with urself for letting ur one love go and thus kill urself)

if you started with emotion it would seem traditionally irraational (emotional impulsive) but to the person who is in love it will cause him undying hapiness in the future(and maybe instantly) and thus be rational despite the reputation of breaking up a marriage of being "hot headed/irrational" prospect theory is one of the first theories (applied in psychology) that factors in for emotion ( in a reasonable amount)

The decision itself must be rational at the time to be made, but others and yourself later on.
I mean emotions change the norm of their lottery limits, causing a decision in the boundary of a loss to a gain.

you dont need to correct urself after ive already corrected u? + if your arguing that was stated in your initial post then i'mm afraid it isnt even implied.

My views definitely fall into Prospect Theory. If I'm winning at the casino and I take a loss? I'm done. I walk.

The decision itself must be rational at the time to be made, but others and yourself later on.
I mean emotions change the norm of their lottery limits, causing a decision in the boundary of a loss to a gain.

WRONG AGAIN

emotions are the usual lottery limits because everyone feels emotion and thus their decisions are altered by it.

Is there always time to weigh up losses and gains in a decision? I suppose it is one of those subconscious processes that we are continually involved in as we assess the world around us and make decisions.

Thanks Geoff.

Do gains have more impact than loss or vice versa? Are humans more driven by gains or losses? For example, is we could have a treatment that would save us from a chronic illness and there was a 50% chance that the illness would be cured and a 50% chance that it would be made worse, would we go for the potential gain or potential loss?

if your applying this in the mathematic way then i suggest u put it in economics in your talking about psychology then generally ( i have no figures but a fairly good idea of this stuff ) people in the west (that have more) are more afraid of losses and vica verca in poor countries - you can probably work out why

but thats only looking at it on a macro kind of view because if your viewed in ur ruch country as the poorest or the richest man in the poorest country the rich man from poor country would be scared of loss. so its better to split it into those that have less and those that have more

but thats only looking at it on a macro kind of view because if your viewed in ur ruch country as the poorest or the richest man in the poorest country the rich man from poor country would be scared of loss. so its better to split it into those that have less and those that have more

Losing the same thing is a different loss and different consequences for a rich or poor man. Its the consequence of the loss they are afraid of.

obviously.

no ones scared of loss if there are no consequences....

no ones scared of loss if there are no consequences....

All loss has some consequence. It wouldn't be a loss without negative consequence.

are you joking the first point is just so randomly obvious?

and the second one is opinion

are you gonna sit here and state assumptionw eve already made?