Prospect Theory Flashcards
Is PT Normative, descriptive, or neither?
Descriptive.
What are the two parts of the Prospect Theory model?
- Probability weighting function.
- Value function.
Prospect theory is _________ in both ______ and _____
Prospect theory is NON-LINEAR in both PROBABILITIES and VALUES.
What does the probability weighting function capture?
How stated probabilities affect choices.
In the probability weight function, do we overweight or underweight small probabilities?
Overweight.
In the probability weight function, do we overweight or underweight large probabilities?
Underweight.
Typically, which of these choices feel like a significant change to participants in a study:
- Increasing the odds of a lottery ticket that has a 65% probability of winning to 70%.
- Increasing the odds from 90% to 95%.
Most pick 2.
According to Prospect Theory, why do people pick A&D in the disease problem?
People are risk averse for gains and risk seeking for losses.
When there’s a small probability of gain, we are…?
Risk-seeking
When there’s a medium-large probability of gain, we are…?
Risk averse
When there’s a medium-large probability of loss, we are…?
Risk-seeking
When there’s a small probability of loss, we are…?
risk-averse
