28.Prospect Theory - Deepstash

28.Prospect Theory

People don’t weigh gains and losses evenly. We hate losing money about twice as much as we like gaining it. So, for instance, we’d need to gain $20 to assuage the pain of losing $10. This bias toward loss aversion is one of the foundations of economic behaviour.

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yz_anroid

A coder & an addict of Knowledge.

Knowledge is meant to be shared, like a flame of a candle that lights another and the two brighten up the room. I want to give GURWINDER of https://www.gurwinder.blog his flowers. He came up with this amazing 30 Concepts. I just felt that the community here at Deepstash could benefit because this is a community that's quite intentional with their actions and aim at amassing a great tone of knowledge. During my earliest days on this platform I focussed on theories that explain humans, why and how they behave. I stashed a lot, I am pretty sure this will be of great use to the community, 🦉

Similar ideas to 28.Prospect Theory

Subjective magnitude

We weigh negatives twice as heavily as positives. This is similar to loss aversion: We prefer avoiding losses than acquiring equivalent gains.

Loss aversion focuses narrowly on losses and gains, however, while subjective magnitude broadly considers positive and negative events.

Loss Aversion

Loss Aversion

Loss aversion reveals that losses impact us approximately twice as strongly as equivalent gains. This asymmetry:

  • Makes us reject favorable gambles with positive expected values
  • Creates the endowment effect where we overvalue what we already possess
  • Expl...

Loss Aversion

Losing something we already have is twice as much pain than gaining the same. This skewed feelings towards loss is known as loss aversion.

Expectations always dampen the feelings of happiness, always setting us up in advance for a dose of disappointment.

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