Nadeesha Cabral

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Utility theory vs Prospect theory

August 14, 2020

    • Utility theory assumes that decision makers makes decisions on the absolute utility of the outcome. (90% chance of lottery winning is valued at 90% chance of winning)
    • People are poor rational actors, and that’s why Prospect Theory was brought forth.
    • I talks about decision weights. (90% chance of lottery winning is perceived as a 100% chance of winning)

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