Cumulative Prospect Theory

DEVELOPERS

A. Tversky & D. Kahneman 1992

BACKGROUND

"Often described as one of the leading theories of decision (e.g., Fennema & Wakker, 1997; Levy, 1992), CPT seeks to describe choice under uncertainty by reconsidering how value is derived, as well as how expectancy should be transformed." (Steel & Konig: 884)

"First, values are based on outcomes that are defined as losses and gains in reference to some status quo or baseline. These outcomes are transformed following a function that is concave for gains, convex for losses, and steeper for losses than for gains. In other words, losses loom larger than gains." (Steel & Konig: 884)

"Second, probability (i.e., expectancy) is also transformed following a function that has both convex and concave segments. Lower probabilities tend to be convex (i.e., overweighted), whereas higher probabilities tend to be concave (i.e., underweighted)." (Steel & Konig: 884

REFERENCES ~ Coding Spreadsheet - Web View

• Fennema, H., & Wakker, P. 1997. Original and cumulative prospect theory: A discussion of empirical differences. Journal of Behavioral Decision Making, 10: 53–64.
• Hunton, J. E., Hall, T. W., & Price, K. H. 1998. The value of voice in participative decision making. Journal of Applied Psychology, 83: 788–797.
• Levy, J. S. 1992. An introduction to prospect theory. Political Psychology, 13: 171–186.
• Steel, P, & Konig, C J. (2006). Integrating theories of motivation. Academy of Management. The Academy of Management Review, 31(4), 889.
• Tversky, A. & Kahneman. D. (1992). Advances in prospect theory: Cumulative representation of uncertainty. Jouranl fo Risk and Uncertainty. 5: 297-323.