Choices, values, and frames.

TLDR

Prospect theory, building on the 1982 volume, compiles seminal papers from economists, decision theorists, and psychologists—including Tversky—and offers empirically verified predictions that better explain complex real‑world puzzles. This book presents the definitive exposition of prospect theory, a compelling alternative to classical utility theory of choice. The authors apply prospect theory to diverse phenomena such as legal compensation, the equity premium puzzle, and cab drivers’ work hours on rainy days. The volume shows that prospect theory has matured into a theoretically elegant and empirically robust new science of decision making.

Abstract

This book presents the definitive exposition of 'prospect theory', a compelling alternative to the classical utility theory of choice. Building on the 1982 volume, Judgement Under Uncertainty, this book brings together seminal papers on prospect theory from economists, decision theorists, and psychologists, including the work of the late Amos Tversky, whose contributions are collected here for the first time. While remaining within a rational choice framework, prospect theory delivers more accurate, empirically verified predictions in key test cases, as well as helping to explain many complex, real-world puzzles. In this volume, it is brought to bear on phenomena as diverse as the principles of legal compensation, the equity premium puzzle in financial markets, and the number of hours that New York cab drivers choose to drive on rainy days. Theoretically elegant and empirically robust, this volume shows how prospect theory has matured into a new science of decision making.