Tag: Prospect Theory

Quality of Life and Prospect Theory

Jason ShafrinLeave a comment

Prospect theory states that individuals view transactions relative to a fixed reference point.  Individuals are risk averse for gains (i.e., they would prefer $10 for sure over a 50/50 of winning $0 or $20) but risk loving over losses (i.e., they would prefer a 50/50 ‘lottery’ of losing $0 or $20 over a sure loss of $10.…

Loss Aversion and Autism

Jason Shafrin1 Comment

If you have $50, would you rather lose $30 or keep $20.  After a little bit of thought, you probably realize that these are the same thing.  Experimental economists, however, have generally found that individuals will go to great lengths to avoid the $30 loss.   This phenomenon is named  loss aversion.   In prospect theory, loss…