Nobody downloaded yet

Prospect Theory - Essay Example

Comments (0) Cite this document
Summary
The theory stipulates that consumers are bound to make their decisions based on the gains and losses rather than the final outcomes (Kahneman and Amos 265). It…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER91.7% of users find it useful
Prospect Theory
Read TextPreview

Extract of sample
"Prospect Theory"

Download file to see previous pages ranked based on the level of preference to the consumer despite the notion that utility derived from goods cannot be measured (Kahneman and Amos 265). The sum spent on a good or service is used to measure the utility since a rational consumer is bound to spend more on a good if the resulting marginal utility is less than that of another preferred good. Notably, the marginal utility of a specified good is related to its price.
The two theories are dependent on different principles. The expected utility theory is based on the expectations, asset integration, and risk aversion. The expectation can be defined as the anticipated utility of an outcome that depends on the price of an item or service. Asset integration results to the measurement of the utility through the prospect of a consumers assets (Kahneman and Amos 266). Utility from one asset alone should exceed the utility of the other assets. Risk aversion shows the level of risk that a consumer is willing to undertake for a defined item. It is equal to the concavity of the utility function.
On the other hand, prospect theory is based on principles such as the measurement of gains and losses. The principles lead to a two-way process that involves the editing and evaluation of a consumers defined situation. During the editing stage, a consumer uses a personal reference point to make adjustments on wealth based on the choice being made. As a result, consumers tend to be reluctant to adjustments known as gain and prefer losses to make their final decision. During the evaluation phase, the consumer will tend to prefer likely events and defer the likely events. Utility is the computed value of evaluation that is based on respective probabilities sand the potential outcomes (Kahneman and Amos 266).
Decision makers in the utility theory are consistent and ordered. They can also rank their choices based on their current situations and attractiveness of each alternative. Preferences cannot be the nature of the choice ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Prospect Theory Essay Example | Topics and Well Written Essays - 1000 words”, n.d.)
Retrieved from https://studentshare.org/finance-accounting/1681309-prospect-theory
(Prospect Theory Essay Example | Topics and Well Written Essays - 1000 Words)
https://studentshare.org/finance-accounting/1681309-prospect-theory.
“Prospect Theory Essay Example | Topics and Well Written Essays - 1000 Words”, n.d. https://studentshare.org/finance-accounting/1681309-prospect-theory.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document
CHECK THESE SAMPLES - THEY ALSO FIT YOUR TOPIC
The principles and prospect of sustainable design
...?Sustainable Design and the Recovery of New Orleans from Hurricane Katrina Introduction In ReXuse the set the highest standards for design. They describe the ReXuse exhibition and Arango Design Foundation's mission as conveying “a vital message that design and the skills of designers largely determine the ease and joy of the man-made world, that they matter deeply to millions.”1 Simply put, design has a profound and often unnoticed impact on daily life: It is an intimate and pervasive aspect of human existence. Arguably, for the vast majority of the population not directly involved in design good design passes unnoticed and passing unnoticed is its highest compliment. Sympathetic design passes unnoticed because it's form... Design and the...
32 Pages(8000 words)Dissertation
Theory
... Module: Democracy as an End in Itself or a Means to an End There has been a belief that majority of thewestern nations achieved prosperity due to their advancement in democracy. Advocates of democracy have been fighting against socialism and communism for over 200 years but since the World War II democracy started to gain root in many countries especially in the east. The Cold War marked quite a significant period where democracy emerged a victor over communism. Using this analysis democracy acts as an end to countries that have been undergoing turmoil or other instabilities. Other outlooks bring forth the concept that democracy is a means to an end. In considering each claim it is important to look into what democracy actually... Module:...
4 Pages(1000 words)Term Paper
Theory
...? Part Theory Assessment INTRODUCTION Business environments are constantly changing and pressing businesses to strengthen competitive positions with adaptability. Businesses are also constantly been striving to adopt the performance means for gaining sustained position in market. In the quest of sustainability and lead, many businesses adopted an extra edge in business operations. For instance, Japanese companies have been stringent in following Total Quality Management techniques for driving operational efficiencies. On the other hand, there had been firms polarized towards achieving sustainability with strengthening positioning aspect. Both aspects being significance to business; however, the real benefit lies in what is named... as...
20 Pages(5000 words)Essay
Theory
...?Le Corbusier’s Spatial Design Oeuvre Introduction The contribution of Le Corbusier to architectural theory and practice, as well as urban planning, in the twentieth century cannot be misjudged. Through the widespread circulation of his building proposals and projects and his comprehensive theoretical effort, practically no other designer has had the same challenging and powerful effect on the treatise of modern architecture. He viewed his theoretical perspectives as an ‘appeal to architects’ (Samuel, 2007, p. 41) which must function as a guide to acknowledging the path to a form of architecture for the modern period. Le Corbusier, the designer, is the re-embodiment of the visual artist Charles-Edouard Jeanneret. Then...
11 Pages(2750 words)Essay
Theory
...The word theory has different meanings in different contexts. In everyday life ‘theory’ means an opinion, a guess, a hunch. However, it is not that way in science. According to Gordana Dodig – Crnkovic (2001), “science is the systematic study of the properties of the physical world, by means of repeatable experiments and measurements, and the development of universal theories that are capable of describing and predicting observations. Statements in science must be precise and meaningful, such that other people can test them (in order to establish “universality”)” (p.6). Correspondingly, theory is science is a logical and mathematical explanation, a framework describing...
2 Pages(500 words)Essay
Compare and contrast standard Expected Utility theory and Prospect theory
...Running head: Utility Theory and Prospect Theory Standard Expected Utility theory Vs Prospect theory Introduction Decision making is one of the core responsibilities of managers in organizations. Decisions can make or break an organization. Logical and timely decisions are always beneficial to the company whereas decisions without proper analysis will always a burden to the company. Today’s managers are increasingly taking decisions based on their intuitions rather than common sense. They will not spend much time for the analysis of the problems in order to take correct decisions. Standard expected utility theory and...
5 Pages(1250 words)Essay
Prospect and Effectiveness of Web 2.0 Tools Usage
...I. Research – area of interest Prospect and effectiveness of use of web 2.0 tools in information literacy in education, workplace and everyday contexts: A comparative study in Australia and other countries. II. Track record III. Research details a. Introduction 1.1 General Web has been an effective tool for collaborative activities in schools, workplace and everyday perspectives. Web 2.0 tools deal with users and content, and are changing the way people share their contexts, opinions, experiences and thoughts. ‘Web 2.0 tools such as RSS, weblogs, social networking and picture sharing sites are getting more popular especially that most of these technologies can be accessed free of charge’ (Bawden 2001). 1.2. Background... Research –...
1 Pages(250 words)Research Proposal
Profiling Australian TSM as a Foreign Direct Investment Prospect
...Profiling Australian TSM as a Foreign Direct Investment Prospect Abstract The significance of Foreign Direct Investment (FDI) as a source of revenue in developed economies has highly increased over the last decades. The remarkable increase in FDI is mainly owed to the globalization of the international economy. Since the expansion of multinational production due to the several regional and universal integration agreements, the impediments to global trade and investment have drastically lowered. Additionally, the technical innovations in ICT have necessitated linking of international business networks. Further, many developing economies have been taking part in in what can be termed as ‘location tournament’ via direct...
9 Pages(1500 words)Assignment
Prospect Theory and Utility Theory
...Prospect Theory and Utility Theory Utility is the expected usefulness from any goods or services. In the context of economics utility of each unit of produced goods cannot be practically assessed. Therefore, in the field of economics utility theory is basically the perceived usefulness that consumers have from each extra unit of goods or services. Traditionally, utility theory has been accepted as normal consequence of logical assumptions, and more broadly has been accepted as explanation of economic approach. Kahneman and Tversky (1979) in their article “Prospect Theory: An Analysis of Decision Under Risk” have explained...
5 Pages(1250 words)Book Report/Review
THEORY-
... "Evolution" In the analysis and study of literature, there are two broad attitudes, descriptive, and theoretical attitudes respectively. When dealing with structural analysis there are two approaches, theoretical and non-descriptive approach. The work of analysis is considerably seen as the manifestation of an abstract structure, and an understanding of that structure is the real objective of structural analysis. The narrative or the story is one of the many possible ways an abstract idea is compilable in some form and not the description of this that is the objective but instead, its the understanding of its structure (Roman, 1975). It shows that the structure has a logical importance rather than a particular one. Basing... "Evolution" In...
3 Pages(750 words)Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Let us find you another Essay on topic Prospect Theory for FREE!
Contact Us