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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)


== Dr. Schudy's comment on this article ==
== Another negative comment on the content ==
"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.) <!-- 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-->
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:


== Note to reviewers ==


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)
{{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.


== Assessment of Article ==
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."


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-->
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).


==Wiki Education assignment: Evolution of Modern Economic Theory==
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.
{{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>
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)
== Dr. Dhami's comment on this article ==


Dr. Dhami 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=This article does not even remotely do any justice to prospect theory. This is a very incomplete and limited account of prospect theory. It will serve more to confuse than enlighten. The original articles by Kahneman and Tversky (in the further reading section of the article) are very enlightening. For a clear and comprehensive treatment of prospect theory, see:
Sanjit Dhami (2016) Foundations of Behavioral Economic Analysis. Oxford University Press. To be published by mid October 2016.
Here is another excellent must-read source to gain understanding of prospect theory:
Kahneman, D., and Tversky, A. (2000). Choices, Values and Frames. Cambridge: Cambridge University Press.

Here are some comments on the individual sections:

1. Section titled "Model": A variety of technical terms are introduced in describing the editing phase in prospect theory--these terms will be unknown to most readers. The following sentence is incorrect: "This differs from expected utility theory, in which a rational agent is indifferent to the reference point."
2. Section titled "Example": The section jumps directly into "fourfold classification of risk". The previous section titled "Model" refers to the 1979 version of the model (better called as original prospect theory) and the fourfold classification refers to the 1992 version of the model (based on Tversky and Kahneman, JRU, 1992: cited in further reading). The 1992 version is known as cumulative prospect theory (and typically just called prospect theory). There is no way someone can understand this material unless it clarified that under prospect theory, risk attitudes are jointly determined by the shapes of the probability weighting function and the shape of the utility function.
3. Section titled "Applications": This is disappointing. It should account for 40% of the article. The applications are very rich, varied, and cover the entire field of economics. All this is covered in:
Sanjit Dhami (2016) Foundations of Behavioral Economic Analysis. Oxford University Press. To be published by mid October 2016.
Kahneman, D., and Tversky, A. (2000). Choices, Values and Frames. Cambridge: Cambridge University Press.

}}


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

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



*'''Reference 1''': Sanjit Dhami & Ali al-Nowaihi, 2010. "The Behavioral Economics of Crime and Punishment," Discussion Papers in Economics 10/14, Department of Economics, University of Leicester, revised Jul 2010.

*'''Reference 2''': Ali al-Nowaihi & Sanjit Dhami, 2008. "A value function that explains the magnitude and sign effects," Discussion Papers in Economics 08/31, Department of Economics, University of Leicester.

[[User:ExpertIdeasBot|ExpertIdeasBot]] ([[User talk:ExpertIdeasBot|talk]]) 02:05, 2 October 2016 (UTC)

== examples - ii ==

"The interplay of overweighting of small probabilities and concavity-convexity of the value function leads to the so-called fourfold pattern of risk attitudes: risk-averse behavior when gains have moderate probabilities or losses have small probabilities; risk-seeking behavior when losses have moderate probabilities or gains have small probabilities. "

this sentence uses "when" by which it makes the layman believe that it describes a causal connection, eg: the risk seeking behavior emerges because there is a small probability of winning. which is utterly wrong, since the choice is influenced by the marginally large sum of possible winnings, even though the chance to win is small, and not because the chance is small. please rephrase it so it clarifies the meaning instead of obfuscating it. [[Special:Contributions/89.134.199.32|89.134.199.32]] ([[User talk:89.134.199.32|talk]]) 22:05, 10 November 2018 (UTC).

== Note to reviewers ==

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)

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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