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The power of perception and the Prospect Theory
Prospect Theory is a behavioral economic theory developed by Daniel Kahneman and Amos Tversky in the 1970s. It is explained in the Chartered Market Technicians curriculum for level 2. The theory aims to explain how individuals make decisions under conditions of uncertainty and how they perceive gains and losses. Prospect theory deviates from classical economic theory, which assumes that individuals make rational decisions based on maximising expected utility. According to Prospect Theory, individuals evaluate outcomes relative to a reference point, often the status quo or their current situation, rather than in ... (full story)
