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we need something good to replace it [[User:TitaniumDreads|TitaniumDreads]] 14:15, 9 Jun 2005 (UTC)
we need something good to replace it [[User:TitaniumDreads|TitaniumDreads]] 14:15, 9 Jun 2005 (UTC)


== Another negative comment on the content ==
== Proposal to add a section that discusses policy applying prospect theory (loss aversion) within our educational system. ==
"Thus, contrary to the expected utility theory (which models the decision that perfectly rational agents would make), prospect theory aims to describe the actual behavior of people."
This is an incorrect understanding of both EU and prospect theory. Prospect theory has three parts: 1) outcomes are measured relative to a status quo - gains and losses, 2) the utility
of net gains is not concave throughout but concave for positive net gains and convex for negative net gains, and 3) re-weighting of probabilities. 1) and 2) are completely consistent with expected utility. There is nothing in Savage, Anscombe-Aumann, or (for the non-subjective theory) Herstein and Milnor that says outcomes have to be absolute rather than relative to a status quo, or that the utility function has to have a particular shape. The only deviation from EU is 3). But even with re-weighting, the outcome is a complete, transitive and reflexive weak preference relation on a universe of alternatives, which is the conventional understanding of rational choice.


This article misrepresents EU by saying that it is THE model of rational decision-making for uncertain prospects. It furthermore implies that concavity of the utility function is a part of expected utility theory. A better understanding is that once we have expected utility, we can make assumptions about its objects, e.g. the shape of the utility function, properties of beliefs (in SEU), and so forth. It misrepresents prospect theory by not accurately describing its deviation from EU and its implicit assertion that it is not "rational".
Prospect theory, specifically loss aversion has recently been tested by notable scholars and more recently by Dr. Roland Fryer and has shown positive behavior change of educators within the educational system. I would like to add a section showing other applications of prospect theory within this setting. I have been studying within the field of education and administration for the last 10 years and I hold a doctorate in Educational leadership and Administration from an accredited university in the U.S. I do not plan to add any independent research within this topic and will present my additions in a neutral and verifiable manner. Please let me know if there are any comments, suggestions, or objections to my intended addition. Fmerenda 19:57, 11 December 2012 (UTC) <small><span class="autosigned">— Preceding [[Wikipedia:Signatures|unsigned]] comment added by [[User:Fmerenda|Fmerenda]] ([[User talk:Fmerenda|talk]] • [[Special:Contributions/Fmerenda|contribs]]) </span></small><!-- Template:Unsigned --> <!--Autosigned by SineBot-->


(Schmeidler provides an axiomatic characterization of a class of decision theories, CEU, that includes re-weighting probabilities, generalizing EU by allowing for the taking of expectations with respect to non-negative and monotonic set functions rather than just those with the additional property of additivity. This class of preferences includes cumulative prospect theory and therefore rank-dependent EU as well. Here the axiomatization is illuminating because we see that the key difference between EU and CEU is the relaxation of independence to comonotonic independence. Compare the two theorems on Schmeidler Econometrica 1989 p 578.) <!-- Template:Unsigned IP --><small class="autosigned">—&nbsp;Preceding [[Wikipedia:Signatures|unsigned]] comment added by [[Special:Contributions/68.175.128.221|68.175.128.221]] ([[User talk:68.175.128.221#top|talk]]) 16:14, 1 February 2021 (UTC)</small> <!--Autosigned by SineBot-->
In the absence of any objections I will begin to add a section regarding the above research utilizing loss aversion from behavioral economics to illustrate a policy that relies upon a specifically framed merit pay intervention.Fmerenda 05:39, 12 December 2012 (UTC) <small><span class="autosigned">— Preceding [[Wikipedia:Signatures|unsigned]] comment added by [[User:Fmerenda|Fmerenda]] ([[User talk:Fmerenda|talk]] • [[Special:Contributions/Fmerenda|contribs]]) </span></small><!-- Template:Unsigned --> <!--Autosigned by SineBot-->


== Note to reviewers ==
: Hi, firstly, if you do not have an account I suggest you get one and then sign any comments/posts/edits etc you make so that you can stay advised of responses etc. Regarding your proposal for adding a section it sounds to me that a simple note as to the application you refer to would suffice. I suggest that the aricle is about the theory itself rather than about any specific application or illustrations of it so any addition you wish to make should stay focused and on topic. An example of the way this could be done would be to use the research you refer to as a citation to substantiate the pertinent statements in the article as it stands. --[[User:LookingGlass|LookingGlass]] ([[User talk:LookingGlass|talk]]) 20:34, 12 December 2012 (UTC)


There should only be one banner on this page per wikiproject. We shouldn't have three different Wikiproject Economics banners, each giving it a different quality rating and importance. Anyone is welcome to review the article and change its quality rating or importance rating to a wikiproject, but you do this by changing the existing ratings, not adding a new banner. It's like when a journal receives different reviews of a paper from different reviewers. It can't make multiple decisions; it has to integrate the different reviewers' feedback into one decision to accept/ reject/ etc. [[User:MartinPoulter|MartinPoulter]] ([[User talk:MartinPoulter|talk]]) 13:39, 17 October 2020 (UTC)
Hi, thank you for your feedback. I respectfully disagree however, I believe adding content to explain its application and using real-world examples should be more than a simple note. The article as it stands has a section entitled application, but does not provide any examples of its application. Additionally, reading the other comments, it seems many people do not fully understand prospect theory and providing examples of its application may assist with clarity. Thoughts? Fmerenda 00:54, 13 December 2012 (UTC) <small><span class="autosigned">— Preceding [[Wikipedia:Signatures|unsigned]] comment added by [[User:Fmerenda|Fmerenda]] ([[User talk:Fmerenda|talk]] • [[Special:Contributions/Fmerenda|contribs]]) </span></small><!-- Template:Unsigned --> <!--Autosigned by SineBot-->


== Assessment of Article ==
: I apologise, you seem to have an account. Please sign your comments with four tilds "~" or by clicking on the pen icon in the menu bar of the comment box.


I rated this article as being of Mid-importance and C quality. I think Prospect Theory is a useful concept in economics, but I think that lay people wouldn’t be as interested in it as someone who’s either an economist or is studying economics. Although, I think it would be of a higher importance in the field of behavioural economics. The article provides a good, broad overview of prospect theory, but I think it could be improved to include better, more thorough explanations. It’s formatted well, referenced well and the writing is easy to understand and flows well. <!-- Template:Unsigned --><small class="autosigned">—&nbsp;Preceding [[Wikipedia:S4481760|S4481760]] comment added by [[User:S4481760|S4481760]] ([[User talk:S4481760#top|talk]] • [[Special:Contributions/S4481760|contribs]]) 03:57, 31 October 2020 (UTC)</small> <!--Autosigned by SineBot-->
: Regarding your proposals, an example should be subservient to that which it is an example of. The key is balance. As the article sets out: "Prospect theory is a behavioral economic theory that describes decisions between alternatives that involve risk, where the probabilities of outcomes are known". Your example is of its application in a particular field however it can be applied in any field.


==Wiki Education assignment: Evolution of Modern Economic Theory==
: In my opinion the cause of the article's lack of clarity is that the article doesn't align with wiki style guidelines. In these it is recommended that articles proceed from the general to the specific in such a way that the subject can be understood by a general non-specialist reader. As it is, the article lacks an adequate introduction, has no sections that expand on the introduction, or adequately explain its history and development, etc. Instead, the article quickly moves into a technical formula and brief explantion/description rather than any general introduction. The article also has no in-line references/citations. Those references that are given are non-specific and so cannot be reasonably verified or tied to the text. The style of the article is not encyclopedic but rather colloqial and chatty, like a magazine article in my opinion. If these matters were addressed any need to fill out the examples section would be significantly reduced.
{{dashboard.wikiedu.org assignment | course = Wikipedia:Wiki_Ed/University_of_New_England/Evolution_of_Modern_Economic_Theory_(Fall) | assignments = [[User:Tommymcguire21|Tommymcguire21]] | reviewers = [[User:Bambam2025|Bambam2025]], [[User:Anonymous1234543210|Anonymous1234543210]], [[User:Tommymcguire21|Tommymcguire21]], [[User:Oceansprings|Oceansprings]] | start_date = 2024-08-30 | end_date = 2024-12-06 }}


<span class="wikied-assignment" style="font-size:85%;">— Assignment last updated by [[User:Anonymous1234543210|Anonymous1234543210]] ([[User talk:Anonymous1234543210|talk]]) 19:59, 14 October 2024 (UTC)</span>
: Finally, I think that consideration should be given to either creating new articles, if the subject of the example is substantive, or of adding into other pertinent articles sections on the use of Prospect Theory in their topic.
: [[User:LookingGlass|LookingGlass]] ([[User talk:LookingGlass|talk]]) 19:32, 13 December 2012 (UTC)


I agree that the article could be more aligned with the items you mentioned for clarity purposes, readability, and wiki style guidelines. Those issues need to be addressed. However, I still feel that giving real-world applications within any field will also help. It isn't the fact that it can be utilized in various manners/fields, but more importantly how it is used and the behavioral reasoning of why it works. By providing examples in Education and of course others can add other fields it has been applied to, may enable readers to put it all together. Thoughts? Fmerenda 04:16, 14 December 2012 (UTC) <small><span class="autosigned">— Preceding [[Wikipedia:Signatures|unsigned]] comment added by [[User:Fmerenda|Fmerenda]] ([[User talk:Fmerenda|talk]] • [[Special:Contributions/Fmerenda|contribs]]) </span></small><!-- Template:Unsigned --> <!--Autosigned by SineBot-->

: Fmerenda, you seem either to not understand or to disregard the two points I made, both of which regard wiki practice:
: 1. You continue to NOT to sign your comments.
: 2. "an example should be subservient to that which it is an example of". I see no purpose in reiterating an expansion of that.
: --[[User:LookingGlass|LookingGlass]] ([[User talk:LookingGlass|talk]]) 06:10, 14 December 2012 (UTC)


I do respectfully disagree again, yet I do understand what you are stating. I do think the topic should be made clearer, but additionally an example of the topic is just as important, if not more to provide clarity for the readers. It doesn't have to be one or another.
: You disagree and yet do not say with WHAT! I have NOT written that examples CANNOT provide clarity. [[User:LookingGlass|LookingGlass]] ([[User talk:LookingGlass|talk]]) 12:37, 15 December 2012 (UTC)

Not sure why when I sign the comments, it is not appearing that way all the time.
: Sign your articles by clicking the icon (at the top) OR just type four tilds "~". Do '''ONLY''' one of these and you will have no problem. [[User:LookingGlass|LookingGlass]] ([[User talk:LookingGlass|talk]]) 12:37, 15 December 2012 (UTC)

Although I appreciate the comments of "LookingGlass", I would also appreciate others points of view as well, in order to make an informed decision regarding my addition and how the COMMUNITY feels about it. Fmerenda 16:07, 14 December 2012 (UTC)
Fmerenda 16:07, 14 December 2012 (UTC) <small><span class="autosigned">— Preceding [[Wikipedia:Signatures|unsigned]] comment added by [[User:Fmerenda|Fmerenda]] ([[User talk:Fmerenda|talk]] • [[Special:Contributions/Fmerenda|contribs]]) </span></small><!-- Template:Unsigned --> <!--Autosigned by SineBot-->
Fmerenda 05:58, 15 December 2012 (UTC)
: You ask for comment but do not address what is offered. What, exactly, are you seeking? [[User:LookingGlass|LookingGlass]] ([[User talk:LookingGlass|talk]]) 12:37, 15 December 2012 (UTC)

Hi:

I beleive I have addressed the comments thus far. Just because I don't agree with the comments made, doesn't mean I haven't addressed them and have not provided the reasons I don't agree. The article needs edits in many areas for clarity, I would like to address the clarity issue by providing real-world examples in a devoted section. Since it seems you want to address other areas of the article, and do not agree with my reasoning, I respectfully welcome comments and perspectives from others, so an informed decision can be made, based on how more than one member of the community feels. Fmerenda 22:14, 18 December 2012 (UTC)
Fmerenda 22:14, 18 December 2012 (UTC) <small><span class="autosigned">— Preceding [[Wikipedia:Signatures|unsigned]] comment added by [[User:Fmerenda|Fmerenda]] ([[User talk:Fmerenda|talk]] • [[Special:Contributions/Fmerenda|contribs]]) </span></small><!-- Template:Unsigned --> <!--Autosigned by SineBot-->

== Examples ==

The table is a bit confusing: it would help if the settlement was specified instead of just "favorable" or "unfavorable". Now it looks as if one would prefer a 5% chance of winning money over a 95% chance of winning the same amount. I assume what is meant is something like:
*95% chance to win $10,000. Fear of disappointment. RISK AVERSE. Accept $9,000 settlement
*5% chance to win $10,000. Hope of large gain. RISK SEEKING. Reject $1,000 settlement
*95% chance to lose $10,000. Hope to avoid loss. RISK SEEKING. Reject paying $9,000 settlement
*5% chance to lose $10,000. Fear of large loss. RISK AVERSE. Accept paying $1,000 settlement [[User:Ssscienccce|<font style="color:DarkGreen;background-color:#FAFAFF;">Ssscienccce </font>]] ([[User talk:Ssscienccce|talk]]) 06:35, 23 March 2014 (UTC)

::I have to say that the example section is a pretty good illustration of how you can take a fairly simple concept and turn it into text even people who understand the theory will be confused by. The point in an example is to explain it to people who don't understand the theory (it's actually a very simple theory) not to throw excessive amounts of terminology at people. [[Special:Contributions/82.26.17.69|82.26.17.69]] ([[User talk:82.26.17.69|talk]]) 22:55, 4 January 2016 (UTC)

== Badly worded sentence ==

"A little more in depth when looking at probability distortion is that..."

Did the writer mean to say, perhaps, "Looking more deeply at probability distortion, it means that..."

I'm not sure, or I would just re-write it myself. [[User:GeneCallahan|GeneCallahan]] ([[User talk:GeneCallahan|talk]]) 06:11, 13 May 2015 (UTC)
== Dr. Schudy's comment on this article ==


Dr. Schudy has reviewed [https://en.wikipedia.org/enwiki/w/index.php?title=Prospect_theory&oldid=725256276 this Wikipedia page], and provided us with the following comments to improve its quality:


{{quote|text=Comment on Figure
Just a tiny detail: In the figure it seems as if the value function is not convex in the loss domain (lower left part seems to become steeper again.

Comment on "Some behaviors observed in economics, like the disposition effect or the reversing of risk aversion/risk seeking in case of gains or losses (termed the reflection effect), can also be explained by referring to the prospect theory."

There is a strong debate under which conditions prospect theory can explain the disposition effect (see e.g. Barberis and Xiong, 2009; Henderson, 2012; Hens and Vlcek, 2011; Kaustia, 2010 for a discussion). Further, recent experimental evidence suggests that the disposition effect cannot fully be explained by prospect theory but rather by a combination of time-insconsistent behavior with some utility models which can generate a reluctance to realize assets trading at a loss (such as prospect theory or realization utility) (see Fischbacher, Hoffmann and Schudy, 2015).

Barberis, N., Xiong, W., 2009. What Drives the Disposition Effect? An Analysis of a Long‐Standing Preference‐Based Explanation. The Journal of Finance, 64(2), 751-784.

Fischbacher, U., Hoffmann, G. and Schudy, S., 2015. The causal effect of stop-loss and take-gain orders on the disposition effect. TWI Research Paper available at: http://www.twi-kreuzlingen.ch/uploads/tx_cal/media/TWI-RPS-089-Fischbacher-Hoffmann-Schudy.pdf

Henderson, V., 2012. Prospect theory, liquidation, and the disposition effect. Management Science, 58(2), 445-460.

Hens, T., Vlcek, M., 2011. Does prospect theory explain the disposition effect? Journal of Behavioral Finance, 12(3), 141-157.

Kaustia, M., 2010. Prospect theory and the disposition effect. Journal of Financial and Quantitative Analysis, 45(03), 791-812.




}}


We hope Wikipedians on this talk page can take advantage of these comments and improve the quality of the article accordingly.

Dr. Schudy has published scholarly research which seems to be relevant to this Wikipedia article:



*'''Reference ''': Urs Fischbacher & Gerson Hoffmann & Simeon Schudy, 2014. "The causal effect of stop-loss and take-gain orders on the disposition effect," TWI Research Paper Series 89, Thurgauer Wirtschaftsinstitut, Universitat Konstanz.

[[User:ExpertIdeasBot|ExpertIdeasBot]] ([[User talk:ExpertIdeasBot|talk]]) 18:50, 27 June 2016 (UTC)
== Dr. Krawczyk's comment on this article ==


Dr. Krawczyk has reviewed [https://en.wikipedia.org/enwiki/w/index.php?title=Prospect_theory&oldid=739715959 this Wikipedia page], and provided us with the following comments to improve its quality:


{{quote|text=The term "prospect theory" is often applied to the cumulative version or both. Given that this entry is on the classic version only, this should be emphasised early on.
"in its simplest form" is unclear.
The picture is misleading, because the value function is smooth at 0, whereas loss aversion would mean that the slope is greater for losses than gains close to zero -- a point of discontinuity.
"This differs from expected utility theory, in which a rational agent is indifferent to the reference point." -- this sentence does not make much sense, for more than one reason. There is no such notion as "reference point" in the EUT. An agent is "indifferent to the reference point" (if I understand this strange expression correctly) also under prospect theory.
"the first equation" -- it is not clear which one is meant here.
"υ()" is not defined. Shouldn't it be v()?
"The value function is thus defined on deviations from the reference point, generally concave for gains and commonly convex for losses and steeper for losses than for gains." -- why this is discussed at this point? It is mentioned when the value function is introduced and that is enough.
"The comparison between ... If we set the frame..." -- it is not clear what these two paragraphs are supposed to illustrate if predictions can be the same.
"The digital age has brought the implementation of prospect theory in software" -- not sure what the authors mean.
"the excess returns puzzle and long swings/PPP puzzle of exchange rates through the endogenous prospect theory of Imperfect Knowledge Economics, " -- is this a "situation"??
}}


We hope Wikipedians on this talk page can take advantage of these comments and improve the quality of the article accordingly.

We believe Dr. Krawczyk has expertise on the topic of this article, since he has published relevant scholarly research:



*'''Reference ''': Micha Krawczyk, 2014. "Probability weighting in different domains: the role of stakes, fungibility, and affect," Working Papers 2014-15, Faculty of Economic Sciences, University of Warsaw.

[[User:ExpertIdeasBot|ExpertIdeasBot]] ([[User talk:ExpertIdeasBot|talk]]) 00:32, 30 September 2016 (UTC)

Latest revision as of 19:59, 14 October 2024

stuff removed

[edit]

Is there a reason this article has been removed? Dieter Simon 23:30 12 Jun 2003 (UTC)

I've removed this dead link

we need something good to replace it TitaniumDreads 14:15, 9 Jun 2005 (UTC)

Another negative comment on the content

[edit]

"Thus, contrary to the expected utility theory (which models the decision that perfectly rational agents would make), prospect theory aims to describe the actual behavior of people." This is an incorrect understanding of both EU and prospect theory. Prospect theory has three parts: 1) outcomes are measured relative to a status quo - gains and losses, 2) the utility of net gains is not concave throughout but concave for positive net gains and convex for negative net gains, and 3) re-weighting of probabilities. 1) and 2) are completely consistent with expected utility. There is nothing in Savage, Anscombe-Aumann, or (for the non-subjective theory) Herstein and Milnor that says outcomes have to be absolute rather than relative to a status quo, or that the utility function has to have a particular shape. The only deviation from EU is 3). But even with re-weighting, the outcome is a complete, transitive and reflexive weak preference relation on a universe of alternatives, which is the conventional understanding of rational choice.

This article misrepresents EU by saying that it is THE model of rational decision-making for uncertain prospects. It furthermore implies that concavity of the utility function is a part of expected utility theory. A better understanding is that once we have expected utility, we can make assumptions about its objects, e.g. the shape of the utility function, properties of beliefs (in SEU), and so forth. It misrepresents prospect theory by not accurately describing its deviation from EU and its implicit assertion that it is not "rational".

(Schmeidler provides an axiomatic characterization of a class of decision theories, CEU, that includes re-weighting probabilities, generalizing EU by allowing for the taking of expectations with respect to non-negative and monotonic set functions rather than just those with the additional property of additivity. This class of preferences includes cumulative prospect theory and therefore rank-dependent EU as well. Here the axiomatization is illuminating because we see that the key difference between EU and CEU is the relaxation of independence to comonotonic independence. Compare the two theorems on Schmeidler Econometrica 1989 p 578.) — Preceding unsigned comment added by 68.175.128.221 (talk) 16:14, 1 February 2021 (UTC)[reply]

Note to reviewers

[edit]

There should only be one banner on this page per wikiproject. We shouldn't have three different Wikiproject Economics banners, each giving it a different quality rating and importance. Anyone is welcome to review the article and change its quality rating or importance rating to a wikiproject, but you do this by changing the existing ratings, not adding a new banner. It's like when a journal receives different reviews of a paper from different reviewers. It can't make multiple decisions; it has to integrate the different reviewers' feedback into one decision to accept/ reject/ etc. MartinPoulter (talk) 13:39, 17 October 2020 (UTC)[reply]

Assessment of Article

[edit]

I rated this article as being of Mid-importance and C quality. I think Prospect Theory is a useful concept in economics, but I think that lay people wouldn’t be as interested in it as someone who’s either an economist or is studying economics. Although, I think it would be of a higher importance in the field of behavioural economics. The article provides a good, broad overview of prospect theory, but I think it could be improved to include better, more thorough explanations. It’s formatted well, referenced well and the writing is easy to understand and flows well. — Preceding S4481760 comment added by S4481760 (talk • contribs) 03:57, 31 October 2020 (UTC)[reply]

Wiki Education assignment: Evolution of Modern Economic Theory

[edit]

This article was the subject of a Wiki Education Foundation-supported course assignment, between 30 August 2024 and 6 December 2024. Further details are available on the course page. Student editor(s): Tommymcguire21 (article contribs). Peer reviewers: Bambam2025, Anonymous1234543210, Tommymcguire21, Oceansprings.

— Assignment last updated by Anonymous1234543210 (talk) 19:59, 14 October 2024 (UTC)[reply]

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