MGMD02H3 Lecture Notes - Lecture 5: Flexible Spending Account, Prospect Theory, Mental Accounting
Document Summary
Lecture 5 - prospect theory & mental accounting. Outcomes are de ned with respect to reference point (often status quo) Losses loom larger than gains : |v(-x)| > v(x) v=valuation, quasi-universal constant: |v(-x)| = 2v(x) Rule of thumb: losses hurt twice as much as gaining. Diminishing sensitivity away from reference point: function is concave for gains and convex for losses v(x) x v. Reference points matters a great deal in terms of how you perceive something. Classifying words or non-words in based on negative or positive words: people were faster to identify negative words than positive, negative thing tend to be more salient. The weber-fechner law & nishing sensitivity away from the reference point: ex. Giving now then give later would feel less profound than giving nothing in the beginning, then give you later. Loss vs. gain framing effects: discounts vs.
