Difference between revisions of "Prospect theory"

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(Blog posts: added Yvain's post)
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*[http://lesswrong.com/lw/115/shane_legg_on_prospect_theory_and_computational/ Shane Legg on prospect theory and computational finance] by [[Roko]]
 
*[http://lesswrong.com/lw/115/shane_legg_on_prospect_theory_and_computational/ Shane Legg on prospect theory and computational finance] by [[Roko]]
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*[http://lesswrong.com/lw/6kf/prospect_theory_a_framework_for_understanding/ Prospect Theory: A Framework for Understanding Cognitive Biases] by [[Yvain]]
  
 
==See also==
 
==See also==

Revision as of 10:19, 9 July 2011

An attempt by Amos Tversky and Daniel Kahneman to construct a decision theory that describes the actual behavior of humans, rather than idealized rational decision-making.

An agent based on prospect theory:

  • is loss-averse, and so weighs losses (relative to some reference point) more strongly than gains
  • is risk-averse with respect to gains, but risk-seeking with respect to losses
  • uses probability weighting: small probabilities count more and larger probabilities count less than they would under expected utility.

Blog posts

See also