Under ________, utility is defined in terms of gains and losses.
A) prospect theory
B) heuristics
C) hyperopia
D) Zipf's law

Question

Quizplus · Accepted Answer

Prospect theory is a behavioral economic theory that describes how people make decisions under risk and uncertainty. According to the theory, individuals evaluate potential gains and losses relative to a reference point (such as their current state or a past experience) and that utility is defined in terms of gains and losses. This is in contrast to traditional economic theory, which assumes that utility is a function of absolute levels of wealth or consumption. Thus, option A is the correct answer. Options B, C, and D are not relevant to the definition of utility in terms of gains and losses.

Under ________, Utility Is Defined in Terms of Gains and Losses