Prospect Theory
A model of how people actually make decisions under risk — not rationally, but by weighing potential losses more heavily than equivalent gains. We're not calculating expected value; we're feeling our way through.
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Origin
Developed by psychologists Daniel Kahneman and Amos Tversky in a landmark 1979 paper that challenged the rational-actor model of classical economics. Their experiments showed that people don't evaluate outcomes in absolute terms — they evaluate them relative to a reference point, and losses hurt roughly twice as much as equivalent gains feel good. The work earned Kahneman the 2002 Nobel Prize in Economics (Tversky had died in 1996).
Updated February 22, 2026