Post by account_disabled on Nov 8, 2023 4:51:09 GMT
What is prospect theory? Prospect theory is a concept about the process of making financial, purchasing, investment, etc. decisions by people. It assumes that profit and loss are valued differently. More specifically, people are more willing to take risks if the prospect of gain is greater than the prospect of loss. According to the creators of this theory - Tversky and Kahneman - people experience negative emotions associated with loss more than positive feelings associated with gain. It's easy to illustrate this with a simple example: Given the options: A sure win of PLN % chance to win PLN or PLN Most people will choose the former.
However, given the choice: A certain loss of PLN % chance of losing PLN or PLN Most people will choose philippines photo editor the second option. In this theory, we can talk about several phenomena that influence a person's final decision: The certainty effect It refers to favoring certain events over very probable ones. People are more likely to choose options that bring a certain profit than options with a lower probability but a higher profit. This is due to the fact that people are reluctant to face loss and experience it much more severely than success - so they remain in a safe comfort zone.
This is also noticeable in the case of loyalty to a given brand and prejudice towards other companies whose offer could be better. Reflection effect Making decisions that will minimize losses, even if the chance of them occurring is slim. Isolation effect Also called framing. It involves changing preferences depending on the way a given option is presented. People tend to focus on the differences rather than the similarities of given options, which is usually easier for them. This leads to different perspectives and influences the final decision.
However, given the choice: A certain loss of PLN % chance of losing PLN or PLN Most people will choose philippines photo editor the second option. In this theory, we can talk about several phenomena that influence a person's final decision: The certainty effect It refers to favoring certain events over very probable ones. People are more likely to choose options that bring a certain profit than options with a lower probability but a higher profit. This is due to the fact that people are reluctant to face loss and experience it much more severely than success - so they remain in a safe comfort zone.
This is also noticeable in the case of loyalty to a given brand and prejudice towards other companies whose offer could be better. Reflection effect Making decisions that will minimize losses, even if the chance of them occurring is slim. Isolation effect Also called framing. It involves changing preferences depending on the way a given option is presented. People tend to focus on the differences rather than the similarities of given options, which is usually easier for them. This leads to different perspectives and influences the final decision.
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