Economics Prospect Theory Questions
In Prospect Theory, mental simulation refers to the cognitive process through which individuals imagine and evaluate potential outcomes of different choices or scenarios. It involves mentally simulating the possible consequences of various decisions and assessing their potential gains or losses. Mental simulation allows individuals to weigh the potential outcomes and probabilities associated with different choices, helping them make decisions based on subjective value rather than objective probabilities. This concept highlights the role of psychological factors, such as emotions and cognitive biases, in decision-making under uncertainty.