7TheoriesChoice Behavior

7TheoriesChoice Behavior - Three properties of K&T’s...

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Theories of Choice Behavior Rational Theory of Choice : Maximize expected utility (von Neumann and Morgenstern 1947) Prospect Theory : Maximize subjective value (subjective utility), minimize subjective losses (Kahneman and Tversky 1979, 1981)
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Unformatted text preview: Three properties of K&T’s value function: 1. It is defined on gains and losses not on total wealth. 2. Loss aversion: losses loom larger than gains. 3. Risk aversion in the domain of gains, risk seeking in the domain of losses....
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