What is the basis of the prospect theory developed by Kahneman and Tversky?

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The prospect theory developed by Kahneman and Tversky identifies individual choice under conditions of uncertainty. Over time, the application of the prospect theory to consumer decision making has been studied under varied conditions and situations. The theory suggests that decision makers assess their options on two non-linear dimensions: A value function which plots out the value of the outcome A probability function that outlines the likelihood of the outcome occurring The main decisive aspect is the decision maker’s (participant’s) reference point as the alternatives are consequential to the comparison of each outcome with its deviation from the reference point. The reference point was used to identify absolute zero, and each alternative...
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