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Prospect Theory

  1. Andrew Chiu,
  2. George Wu

Published Online: 15 JUN 2010

DOI: 10.1002/9780470400531.eorms0687

Wiley Encyclopedia of Operations Research and Management Science

Wiley Encyclopedia of Operations Research and Management Science

How to Cite

Chiu, A. and Wu, G. 2010. Prospect Theory. Wiley Encyclopedia of Operations Research and Management Science. .

Author Information

  1. University of Chicago Booth School of Business, Center for Decision Research, Chicago, Illinois

Publication History

  1. Published Online: 15 JUN 2010
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Figure 1. A typical prospect theory value function, v(x), which is concave for gains and convex for losses (and thus consistent with the principle of diminishing sensitivity) and is steeper for losses than gains (and thus exhibits loss aversion).

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Figure 2. A typical prospect theory probability weighting function, π(p), which is concave for small probabilities and convex for medium to large probabilities (and thus consistent with the principle of diminishing sensitivity).