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    Prospect Theory: Siti Noraein Mohd Hadi Huwaida Husna Mohd Tahir Alya Munirah Yusoff

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    Prospect theory suggests that individuals weigh gains more heavily than losses, and as a result make decisions aimed at achieving gains. Under this theory, risks are categorized as either contributing to gains or losses, and people treat these categories differently in order to achieve positive outcomes. Prospect theory was developed by Daniel Kahneman and Amos Tversky in 1979 to explain how people react differently to good and bad outcomes. People judge gains and losses relative to a status quo, experience diminishing returns for successive gains or losses, and feel losses more intensely than equivalent gains. This loss aversion explains why food producers sometimes shrink product sizes rather than raise prices when costs increase.

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    Prospect Theory: Siti Noraein Mohd Hadi Huwaida Husna Mohd Tahir Alya Munirah Yusoff

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    Aein Nia
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    Prospect theory suggests that individuals weigh gains more heavily than losses, and as a result make decisions aimed at achieving gains. Under this theory, risks are categorized as either contributing to gains or losses, and people treat these categories differently in order to achieve positive outcomes. Prospect theory was developed by Daniel Kahneman and Amos Tversky in 1979 to explain how people react differently to good and bad outcomes. People judge gains and losses relative to a status quo, experience diminishing returns for successive gains or losses, and feel losses more intensely than equivalent gains. This loss aversion explains why food producers sometimes shrink product sizes rather than raise prices when costs increase.

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    Prospect theory suggests that individuals weigh gains more heavily than losses, and as a result make decisions aimed at achieving gains. Under this theory, risks are categorized as either contributing to gains or losses, and people treat these categories differently in order to achieve positive outcomes. Prospect theory was developed by Daniel Kahneman and Amos Tversky in 1979 to explain how people react differently to good and bad outcomes. People judge gains and losses relative to a status quo, experience diminishing returns for successive gains or losses, and feel losses more intensely than equivalent gains. This loss aversion explains why food producers sometimes shrink product sizes rather than raise prices when costs increase.

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    26 views6 pages

    Prospect Theory: Siti Noraein Mohd Hadi Huwaida Husna Mohd Tahir Alya Munirah Yusoff

    Uploaded by

    Aein Nia
    Prospect theory suggests that individuals weigh gains more heavily than losses, and as a result make decisions aimed at achieving gains. Under this theory, risks are categorized as either contributing to gains or losses, and people treat these categories differently in order to achieve positive outcomes. Prospect theory was developed by Daniel Kahneman and Amos Tversky in 1979 to explain how people react differently to good and bad outcomes. People judge gains and losses relative to a status quo, experience diminishing returns for successive gains or losses, and feel losses more intensely than equivalent gains. This loss aversion explains why food producers sometimes shrink product sizes rather than raise prices when costs increase.

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    of 6

    SI TI NORAEI N MOHD HADI

    HUWAI DA HUSNA MOHD TAHI R


    ALYA MUNI RAH YUSOFF
    PROSPECT THEORY
    DEFINITION
    Theory that suggest that individuals place more
    emphasizes on gains rather than losses and as
    a result will try to make decisions that contribute to
    gains. The prospect theory lumps risks into two
    categories: those that contribute to gains and ones that
    contribute to losses. Under this theory, people treat the
    two sections of risk totally different in order to receive a
    positive outcome. Prospect theory was developed by
    Daniel Kahneman and Amos Tversky in 1979.


    3 INTERESTING FACTS
    HOW PEOPLE REACT TO GOOD AND BAD?

    1. STATUS QUO
    PEOPLE JUDGE GOOD THINGS AND BAD
    THINGS IN RELATIVE TERMS.
    Relative positioning-People tend to be most interested in their
    relative gains and losses as opposed to their final income and wealth.

    2. People experience both diminishing marginal
    utility for gains and diminishing marginal
    disutility for losses.
    Each excessive unit loss hurts, but less painfully than the
    previous unit.
    3. Loss aversion
    Losses are felt much more intensely than gains.
    In fact, about 2.5 times more intense
    LOSSES AND SHRINKING PACKAGES

    The fact that consumers may view a price increase as a
    loss explains the reason why many food producers
    react to rising input cost by shrinking the sizes of
    their product instead of increasing the price.


    5 cents
    5 cents 100 years

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