Talk:Prospect theory

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stuff removed[edit]

Is there a reason this article has been removed? Dieter Simon 23:30 12 Jun 2003 (UTC)

I've removed this dead link

Cornell University Lecture Notes on Behavorial Economics and Prospect Theory

we need something good to replace it TitaniumDreads 14:15, 9 Jun 2005 (UTC)

examples - ii[edit]

"The interplay of overweighting of small probabilities and concavity-convexity of the value function leads to the so-called fourfold pattern of risk attitudes: risk-averse behavior when gains have moderate probabilities or losses have small probabilities; risk-seeking behavior when losses have moderate probabilities or gains have small probabilities. "

this sentence uses "when" by which it makes the layman believe that it describes a causal connection, eg: the risk seeking behavior emerges because there is a small probability of winning. which is utterly wrong, since the choice is influenced by the marginally large sum of possible winnings, even though the chance to win is small, and not because the chance is small. please rephrase it so it clarifies the meaning instead of obfuscating it. 89.134.199.32 (talk) 22:05, 10 November 2018 (UTC).[reply]

Another negative comment on the content[edit]

"Thus, contrary to the expected utility theory (which models the decision that perfectly rational agents would make), prospect theory aims to describe the actual behavior of people." This is an incorrect understanding of both EU and prospect theory. Prospect theory has three parts: 1) outcomes are measured relative to a status quo - gains and losses, 2) the utility of net gains is not concave throughout but concave for positive net gains and convex for negative net gains, and 3) re-weighting of probabilities. 1) and 2) are completely consistent with expected utility. There is nothing in Savage, Anscombe-Aumann, or (for the non-subjective theory) Herstein and Milnor that says outcomes have to be absolute rather than relative to a status quo, or that the utility function has to have a particular shape. The only deviation from EU is 3). But even with re-weighting, the outcome is a complete, transitive and reflexive weak preference relation on a universe of alternatives, which is the conventional understanding of rational choice.

This article misrepresents EU by saying that it is THE model of rational decision-making for uncertain prospects. It furthermore implies that concavity of the utility function is a part of expected utility theory. A better understanding is that once we have expected utility, we can make assumptions about its objects, e.g. the shape of the utility function, properties of beliefs (in SEU), and so forth. It misrepresents prospect theory by not accurately describing its deviation from EU and its implicit assertion that it is not "rational".

(Schmeidler provides an axiomatic characterization of a class of decision theories, CEU, that includes re-weighting probabilities, generalizing EU by allowing for the taking of expectations with respect to non-negative and monotonic set functions rather than just those with the additional property of additivity. This class of preferences includes cumulative prospect theory and therefore rank-dependent EU as well. Here the axiomatization is illuminating because we see that the key difference between EU and CEU is the relaxation of independence to comonotonic independence. Compare the two theorems on Schmeidler Econometrica 1989 p 578.) — Preceding unsigned comment added by 68.175.128.221 (talk) 16:14, 1 February 2021 (UTC)[reply]

Note to reviewers[edit]

There should only be one banner on this page per wikiproject. We shouldn't have three different Wikiproject Economics banners, each giving it a different quality rating and importance. Anyone is welcome to review the article and change its quality rating or importance rating to a wikiproject, but you do this by changing the existing ratings, not adding a new banner. It's like when a journal receives different reviews of a paper from different reviewers. It can't make multiple decisions; it has to integrate the different reviewers' feedback into one decision to accept/ reject/ etc. MartinPoulter (talk) 13:39, 17 October 2020 (UTC)[reply]

Assessment of Article[edit]

I rated this article as being of Mid-importance and C quality. I think Prospect Theory is a useful concept in economics, but I think that lay people wouldn’t be as interested in it as someone who’s either an economist or is studying economics. Although, I think it would be of a higher importance in the field of behavioural economics. The article provides a good, broad overview of prospect theory, but I think it could be improved to include better, more thorough explanations. It’s formatted well, referenced well and the writing is easy to understand and flows well. — Preceding S4481760 comment added by S4481760 (talk • contribs) 03:57, 31 October 2020 (UTC)[reply]