Paper
1979
Prospect Theory: An Analysis of Decision under Risk
Daniel Kahneman & Amos Tversky
People evaluate outcomes as gains and losses from a reference point, which breaks expected utility theory in predictable ways.
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Groundwork for
Works in the library that name this one as a prerequisite.
- Reasoning the Fast and Frugal Way: Models of Bounded RationalityGerd Gigerenzer & Daniel G. Goldstein, 1996Simple heuristics that ignore most available information can match or beat complex models under real uncertainty — a challenge to reading every heuristic as a bias.
- Experimental Tests of the Endowment Effect and the Coase TheoremDaniel Kahneman, Jack L. Knetsch & Richard H. Thaler, 1990Shows in market experiments that people demand far more to give up a mug they own than they would pay to acquire the same mug, contradicting the Coase theorem's assumption that initial ownership should not affect the final allocation.
- Mental Accounting MattersRichard H. Thaler, 1999Argues people file money into separate mental budgets -- rent, fun, savings -- that are supposed to be fungible but in practice are not, which shapes decisions standard economic theory treats as identical.
- The Framing of Decisions and the Psychology of ChoiceAmos Tversky & Daniel Kahneman, 1981Shows that describing an identical choice in terms of gains versus losses reliably reverses which option people prefer, undermining the assumption that preferences are independent of how options are worded.
- From Cashews to Nudges: The Evolution of Behavioral EconomicsRichard H. Thaler, 2018Traces behavioural economics from an initial list of anomalies that violated standard rational-choice theory to a working alternative that treats predictable mistakes as data rather than noise to be assumed away.
Filed under Behavioural Economics in Economics.