In Example 3, Prospect theory can rationalize the behavior of betting on the favorites early in the night and the long-shots later in the night because bettors tend to lose money early in the night and then are operating in the loss domain later in the night.

Question

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Prospect theory suggests that individuals are more risk-averse when they perceive themselves to be in a domain of gains but become more risk-seeking in a domain of losses. Therefore, after losing money early (entering the loss domain), bettors are more likely to take risks on long-shots later in the night.

In Example 3, Prospect Theory Can Rationalize the Behavior of Betting