Prospect theory

Not so much.

I mean, the direction that things have gone down in the past are one is actually trying to apply Carmen and Tversky's prospect theory, which is with utilities, it's still got all the same problems as the more classical economic theory utilities, but recognizing that things like certain cognitive or motivational biases, like people for the same outcome, if it's expressed as a loss, It has a different subjective utility than it's expressed.

Yeah, loss aversion.

Exactly, that sort of stuff.

Feeling is a type of thinking.

Daniel Kahneman and Amos Tversky won the Nobel Prize for Prospect Theory, and that was one of their conclusions.

Feeling is a type of thinking.

You cannot take the emotion out.

We can have an offline chat about that.

The second example I give is prospect theory, or you call it loss aversion.

And I actually, I gave a presentation as a part of my business school back when I was a sophomore or junior in college.

And I was doing a presentation on the psychology of investing.

I was talking about prospect theory.

And it's this idea that investors feel pain about twice as much as they feel investment gains.

And so the pain felt is like more intense than the pleasure or the gain we experience when the market goes up.

And the common one is just selling out when the market is down.

This has been amazing.

Prospect theory really seems to show up near the end of a transaction.

Once people know they're about to make life-changing money, how does their decision-making change? Because I've seen people get super squirrely at the end of a deal.

Everybody's different.

so much more than we treasure the gains, that admitting loss seems to be so, so difficult for us.

So what is prospect theory, and, and what is the kind of logic behind this human psychology?

psychology?Wonderful, uh, Kahneman and Tversky changed our idea where we thought people are either risk-loving or risk-averse

Really true