Unifying theory of Behavioral Economics by Kahneman and Tversky. Humans: * Think more of loses than gains: earning $1000 gives less pleasure than the pain of losing $1000. * Value gains in a concave way: earning $2000 is less than twice as good as earning $1000 * Value losses in a convex way: losing $2000 hurts less than twice as losing $1000 does ![[Prospect Theory.png]] A lot of "irrational" behavior like loss aversion, [[Endowment effect]] and others are downstream from here. As [[Gut Feelings, Greg Gigerenzer|Gut feelings]] shows though these are probably useful heuristics in our [[Environment of evolutionary adaptedness (EEA)|EEA]]. Read more [here](https://en.wikipedia.org/wiki/Prospect_theory). #published 2025-03-08