Prospect Theory
Also called: Kahneman and Tversky, value function, reference dependence
Prospect theory describes how people actually choose under risk: gains and losses are judged against a reference point rather than in terms of final wealth, losses weigh more heavily, and small probabilities are overweighted. It won Kahneman a Nobel and replaced expected utility as the descriptive model. The overweighting of tiny probabilities is why the same person buys both lottery tickets and insurance.
Where this is taught
Definitions are the trailer. These free levels turn Prospect Theory into something you play — one bite-size lesson, with worked examples, a quiz and XP.