Prospect Theory

Theory that suggest that individuals place more emphasizes on gains rather than losses and as a result will try to make decisions that contribute to gains. The prospect theory lumps risks into two categories: those that contribute to gains and ones that contribute to losses. Under this theory, people treat the two sections of risk totally different in order to receive a positive outcome. Prospect theory was developed by Daniel Kahneman and Amos Tversky in 1979.

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