Prospect theory maintains that consumers frame decision alternatives in terms of gains and losses according to a value function.

Question

Quizplus · Accepted Answer

This is an accurate description of prospect theory, which was developed by Kahneman and Tversky in the 1970s. The value function in prospect theory is typically concave for gains and convex for losses, meaning that people experience diminishing sensitivity to gains as they increase in magnitude and increasing sensitivity to losses as they become larger. This can have important implications for consumer behavior, such as the tendency to be risk-seeking for losses but risk-averse for gains.

Prospect Theory Maintains That Consumers Frame Decision Alternatives in Terms