prospect theory

Syllable breakdown

Dictionary meaning

a descriptive model of decision-making under uncertainty developed by Daniel Kahneman and Amos Tversky as an empirically grounded alternative to expected utility theory; prospect theory holds that people evaluate outcomes relative to a reference point rather than in absolute terms, weight losses more heavily than equivalent gains (loss aversion), and apply nonlinear probability weighting that overweights small probabilities and underweights large ones; published in Econometrica in 1979, it became one of the most cited papers in economics and formed the intellectual foundation of behavioural economics as a discipline, contributing to Kahneman's Nobel Memorial Prize in Economic Sciences in 2002