VIEWPOINT: Anchoring reference point

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Prospect Theory shows us that we measure gains and losses relative to a set reference point or status quo (see my previous article). This particular reference point is subjective and can be different for different people in different scenarios. In 1974, Amos Tversky and Daniel Kahneman performed an experiment where they asked participants: “What is…

VIEWPOINT: Prospect Theory

Articles, Develop

Daniel Kahneman (Nobel Prize winner) and Amos Tversky developed a theory known as Prospect Theory which shows that, as individuals, we make decisions based on the value of potential losses and gains rather than the final outcome. The horizontal x axis measures the value of our gain or loss, whilst the vertical y axis measures…