Which of the following is a characteristic of 'Prospect Theory' developed by Kahneman and Tversky?
A. People evaluate outcomes relative to a reference point and are loss-averse
B. Only final wealth levels matter
C. People always maximise expected utility with stable preferences
D. Losses and gains are treated symmetrically
Answer: Option A
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).
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