Prospect Theory explains how real people value gains and losses in risky choices.
Take this quiz to see whether you can predict behavior beyond rational utility models.
Who first introduced Prospect Theory in 1979?
Richard Thaler and Cass Sunstein
Daniel Kahneman and Amos Tversky
Herbert Simon
Dan Ariely
Prospect Theory states that people evaluate outcomes relative to a ______ point.
maximum utility
market
reference
average
Loss aversion implies that the pain of losing $100 is roughly ______ the joy of gaining $100.
four times
twice
half
equal to
The Prospect Theory value function is typically ______ for gains and convex for losses.
convex
concave
exponential
linear
According to Prospect Theory, people tend to ______ small probabilities.
treat accurately
overweight
underweight
ignore
Which behavioral bias is MOST directly explained by loss aversion in Prospect Theory?
Endowment effect
Confirmation bias
Availability bias
Anchoring effect
Prospect Theory predicts risk‑______ behavior for gains and risk‑seeking for losses.
loving
neutral
averse
seeking
The lambda (λ) parameter in Prospect Theory specifically captures the degree of ______.
loss aversion
anchoring strength
time discounting
probability weighting
Framing a 90% survival rate as a 10% mortality rate can reverse choices due to ______.
hyperbolic discounting
priming
mere‑exposure
framing effect
Combining loss aversion with probability weighting yields the ______ pattern of risk attitudes.
decoy
paradoxical
fourfold
dual‑system
Starter
Loss aversion still feels fuzzy—revisit the value curve before wagering decisions.
Solid
Strong effort! Sharpen your grasp of probability weighting to move to mastery.
Expert!
Outstanding—your insights into framing and reference dependence show expert fluency.
