Economics Prospect Theory Questions
Loss aversion is a concept in Prospect Theory that refers to the tendency of individuals to strongly prefer avoiding losses over acquiring gains of equal value. According to this theory, people feel the pain of a loss more intensely than the pleasure of an equivalent gain. As a result, individuals are willing to take greater risks to avoid losses compared to the risks they are willing to take to achieve gains. This asymmetry in decision-making is a key component of Prospect Theory and helps explain why individuals often make irrational choices when faced with potential losses.