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prospect theory

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adaptation-level theory

adaptation-level theory  

A theory proposed by the US psychologist Harry Helson (1898–1977) in an article in the American Journal of Psychology in 1947, according to which the adaptation level is determined for a class of ...
Allais paradox

Allais paradox  

A paradox of decision making that usually elicits responses inconsistent with expected utility theory. First, a choice is made betweenA $500,000 with probability 1 (certainty)B $2,500,000, $500,000, ...
anomaly

anomaly  

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An opportunity for abnormal returns in financial markets. If markets are efficient there should be no anomalies (see efficient markets hypothesis), and the assumption that this will indeed be the ...
behavioural finance

behavioural finance  

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The study of the role played by psychological factors in financial decision making and hence their effect on overall market outcomes. In particular, behavioral finance studies the ways in which ...
decision-making

decision-making  

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The process of acting upon the best information available in order to determine the most appropriate course of action.
dominant alternative/strategy

dominant alternative/strategy  

In decision theory and game theory, an alternative or strategy (2) that, in every contingency that might arise, yields a payoff at least as good as the payoff from any other available alternative or ...
endowment effect

endowment effect  

The tendency to demand much more to give up an object than one is willing to pay to acquire it. The phenomenon was identified and named in 1980 by the US economist Richard H. Thaler (born 1945) and ...
expected utility theory

expected utility theory  

A theory of decision making, formalized in 1947 by the Hungarian-born US mathematician John von Neumann (1903–57) and the German-born US economist Oskar Morgenstern (1902–77), according to which a ...
expected value

expected value  

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(EV)A statistical measure of central value often used in decision making. It is the sum of the possible outcomes in quantitative terms, such as units of output or sales, weights, or volumes, ...
framing effect

framing effect  

An effect of the description, labelling, or presentation of a problem on responses to it. A classic example was provided in 1981 by the US-based Israeli psychologists Amos Tversky (1937–96) and ...
hedonic treadmill

hedonic treadmill  

An interpretation of subjective well-being based on adaptation-level theory, published by the Canadian psychologist Philip Brickman (1943–82) and the US psychologist Donald T(homas) Campbell ...
loss aversion

loss aversion  

The observation that a loss generally has a greater subjective effect than an equivalent gain. See prospect theory. See also endowment effect. Compare risk aversion. loss-averse adj.
power law

power law  

Any law expressed by a mathematical power function, especially the psychophysical law that was advocated from 1953 onwards by the US psychologist S(tanley) S(mith) Stevens (1906–73) and discussed by ...
prospect theory

prospect theory   Reference library

Dictionary of the Social Sciences

Reference type:
Subject Reference
Current Version:
2002
Subject:
Social sciences
Length:
172 words

A social-psychological theory of decision making under conditions of risk and uncertainty, developed by Daniel Kahneman and Amos Tversky.

psychological decision theory

psychological decision theory  

A normative (2) and descriptive approach to judgement and decision introduced in the early 1970s by the Israeli psychologists Amos Tversky (1937–96) and Daniel Kahneman (born 1934) and the US ...
risk aversion

risk aversion  

A widespread characteristic of human preferences, first discussed in 1738 by the Swiss mathematician and physicist Daniel Bernoulli (1700–82), according to which most people tend to value gains ...
risk-seeking

risk-seeking  

A tendency among human decision makers to prefer losses involving risk (2) to sure-thing losses of equivalent monetary expectation. Experiments have shown that human decision makers typically prefer ...
subjective expected utility theory

subjective expected utility theory  

A theory of decision making according to which a decision maker chooses an alternative or strategy (2) that maximizes subjective expected utility. It was introduced by the US decision theorist ...
subjective probability

subjective probability  

Probability defined in terms of degree of belief rather than relative frequency of events (as in the classical interpretation of probability), widely used in Bayesian inference, in which prior ...
utility

utility  

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1 The quality of being of practical use. See also utilitarian.2 A company that performs a public service (such as delivering water or energy to a region), subject to government regulation.

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