Difference between revisions of "Prospect theory"
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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]] | ||
| + | *[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
- Shane Legg on prospect theory and computational finance by Roko
- Prospect Theory: A Framework for Understanding Cognitive Biases by Yvain
