Describe the concept of probability neglect in Prospect Theory.

Describe the concept of probability neglect in Prospect Theory.

Probability neglect in Prospect Theory refers to the tendency of individuals to disregard or underestimate the importance of probabilities when making decisions under uncertainty. According to Prospect Theory, people tend to focus more on the potential outcomes or gains and losses associated with a decision rather than the actual probabilities of those outcomes occurring. This means that individuals may make decisions based on the potential magnitude of gains or losses rather than the likelihood of those outcomes happening. Probability neglect can lead to biased decision-making and irrational behavior, as individuals may overlook the importance of probabilities in assessing the overall risk and expected value of a decision.