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Prospect Theory Value and Probability Weighting — Behavioral Economics — Kynotic Academy
Ch 4
Prospect Theory Value and Probability Weighting
14 min
Picture yourself choosing between a sure 100 if heads, nothing if tails. Expected value says they’re the same, but most people grab the sure 50. Would you take a sure loss of 100 or nothing? Suddenly the gamble feels tempting. Prospect theory explains why our choices change depending on whether we see outcomes as gains or losses — and why we treat probabilities in surprising ways.