Question

In 1979, psychologists Daniel Kahneman and Amos Tversky published a paper titled, “Prospect Theory: An Analysis Of Decision Under Risk”

The theory states:

“People make decisions based on the potential value of losses and gains rather than the final outcome"

What is an example of personal wrong decision to prove the theory ?

Answer 1

In 1979, psychologists Daniel Kahneman and Amos Tversky published a paper entitled "Perspectives: Analyzing Risk Decisions."

The theory states:

People make decisions based on the potential value of loss and profit, not the end result.

According to Kahneman and Tversky, losses and gains are evaluated differently, and thus consumers make decisions based on the gains received instead of the realized losses.

For example, most people would love to win $ 50 for sure, rather than risky betting that they could throw a coin and win $ 100 or nothing.

However, Kahneman and Tversky also discovered:

The same person when faced with 100% loss, $ 50 loss, 50% loss, or $ 100 loss - often chose the second option

Philosophy now explains the three biases that people use when making decisions:

1. Safety: This is when people become prone to overweight choices, which is safe and a risk to win.

2. The effect of isolation: "Refers to people's tendency to act on information that is unique and different from the rest."

3. Avoiding Losses: "When people like to avoid losses to make a profit,"

This post goes deep into these biases and shares some ideas and examples of how they are embedded in your own marketing or business activities.

Here is an example of two questions used in this study:

1. You have $ 1,000 and you need to make one of the following choices:

                 Option 1: You have a 50% chance of making $ 1000 and $ 50 earning $ 0.

                 Option B: You have a 100% chance of earning $ 500.

2. You have $ 2000 and you must make one of the following choices:

                 Option A: You have a 50% chance of losing $ 1,000 and a 50% chance of losing $ 0.

                 Option B: You have a 100% chance of losing $ 500.

If these questions are answered logically, the subject can choose either "A" or "B" in both situations. Those who tend to choose "B" are less likely to be exposed than those who would choose "A". However, the survey results show that a large number of people chose "B" for Question 1 and "A" for Question 2.

The effect of this is that people are willing to raise reasonable levels of profit (even if they have a reasonable chance of earning more than those profits) but are more likely to engage in risky behavior at In a situation where they are able to limit their losses. In other words, a loss usually weighs more than the equivalent of a winning amount.

value outcome Losses Gains Reference point