Prospect Theory

I just found a great series of articles on prospect theory via the Trader Psychology Blog. Before I link to the blog I have included a description of prospect theory for beginners.

Wikipedia Definition of Prosepect Theory:

“developed by Daniel Kahneman, professor at Princeton University‘s Department of Psychology, and Amos Tversky in 1979 as a psychologically realistic alternative to expected utility theory. It allows one to describe how people make choices in situations where they have to decide between alternatives that involve risk, e.g. in financial decisions. Starting from empirical evidence, the theory describes how individuals evaluate potential losses and gains. In the original formulation the term prospect referred to a lottery.”

Click Here To Read Prospect Theory from Trader Psychology

Additional Links:

Click Here for BehaviorNet’s Take on Prosepect Theory
Click Here for Prospect Theory Calculator

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20. August 2008 by Miguel Barbosa
Categories: Behavioral Economics, Curated Readings | Leave a comment

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