PHL 101 Lecture 18: PHL Lecture 18
Document Summary
Given that so many examples exist of sub optimal decision-making and alternative to the rational model is known as prospect theory. (tversky & kahneman) Rational models and normative models don"t predict human decision making: expected utility is adjusted for a reference point (loss of 600 people versus loss of 400 people), accounts for framing effects. In prospect theory: objective probability is replaced by psychological probability. Differential predictions are made for: loss aversion, risk aversion (loss aversion the gain of 100 is not as good as the loss of 100 is bad) This curve graphs the overall psychological impression of gains and losses and the y-axis shows the psychological value people place on monetary values. Asymmetrical: loss curve is more sudden steeper, loss aversion loss of 100 dollars is worse than the gain of 100, losses loom larger than gains do. Imagine you just finished a particularly difficult final exam, and you are walking home.
