Which of the following is a characteristic of 'Prospect Theory' developed by Kahneman and Tversky?
A. Losses and gains are treated symmetrically
B. People always maximise expected utility with stable preferences
C. People evaluate outcomes relative to a reference point and are loss-averse
D. Only final wealth levels matter
Answer: Option C
Solution (By JKSSB Mock Tests)
Prospect theory posits that individuals evaluate outcomes as gains or losses relative to a reference point, overweight small probabilities, and exhibit loss aversion (losses loom larger than gains).
Explanation:
Any point inside the PPF represents underutilisation or inefficient use of resources. Points on the curve are efficient and points outside are unattainable with current resources.
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