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The Complete Idiot's Guide to Game Theory by Edward Rosenthal, Ph.D., Edward C. Rosenthal

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Prospect Theory

Prospect theory was launched by two psychologists, Nobel Laureate Daniel Kahneman and Amos Tversky, in a 1979 paper. Don’t read too much into the name of the theory; prospects refer to different risky choices, as in a lottery, but mainly Kahneman and Tversky just liked the phrase.
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Although not an economist, Kahneman was awarded the Nobel Prize in Economic Sciences in 2002, six years after Tversky’s untimely death. Tversky surely would have shared in this accolade.
Prospect theory, first of all, is based on how we actually behave, as opposed to utility theory, which is based on an elegant, but artificial, set of ...

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