________ implies that people evaluate the risks that lead to gains separately from the risks that lead to losses.
A) The standard economic model
B) Austrian business-cycle theory
C) The theory of comparative advantage
D) Insurance theory
E) Prospect theory

Question

Quizplus · Accepted Answer

Prospect theory, developed by Daniel Kahneman and Amos Tversky, proposes that individuals do not evaluate risks and gains in a linear manner, but rather in a concave shape. This means that losses loom larger than gains of equal magnitude. Additionally, individuals exhibit a phenomenon known as loss aversion, where the pain from a loss is felt more severely than the pleasure from an equivalent gain. This theory suggests that people evaluate risks that lead to gains separately from the risks that lead to losses.

________ Implies That People Evaluate the Risks That Lead to Gains