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Kahneman & Tversky

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http://framing.behaviouralfinance.net/ [KaTv00] "The rational theory of choice assumes description invariance: equivalent formulations of a choice problem should give rise to the same preference order (Arrow, 1982). Contrary to this assumption, there is much evidence that variations in the framing of options (e.g., in terms of gains or losses) yield systematically different preferences (Tversky and Kahneman, 1986)." Framing Framing - Mozilla Firefox

Framing Kahneman and Tversky defined a decision frame as ‘the decision-maker’s conception of the act, outcomes and contingencies associated with a particular choice.’ Research A frame is the combination of beliefs, values, attitudes, mental models, and so on which we use to perceive a situation. We effectively look through this frame in the way we would look through tinted spectacles. The frame significantly effects how we infer meaning and hence understand the situation. Tversky and Kahneman offered people one of the following choices: http://changingminds.org/explanations/theories/framing.htm

http://www.valuebasedmanagement.net/methods_tversky_framing.html Framing explained Framing (F) is focusing the attention of people within a field of meaning . Tversky and Kahneman should be seen as the founders of framing theory, although Fairhurst and Sarr actually coined the term. Contrary to the central concept of of rational choice theory (people always strive to make the most rational choices possible), Framing theory suggests that how something is presented (the “frame”) influences the choices people make. Frames are abstract notions that serve to organize or structure social meanings .

Framing , a term used in media studies , sociology and psychology , refers to the social construction of a social phenomenon by mass media sources or specific political or social movements or organizations. It is an inevitable process of selective influence over the individual's perception of the meanings attributed to words or phrases. A frame defines the packaging of an element of rhetoric in such a way as to encourage certain interpretations and to discourage others. http://en.wikipedia.org/wiki/Framing_(social_sciences) Framing (economics) - Wikipedia, the free encyclopedia

Trends http://trend.behaviouralfinance.net/ KUMAR, A. and R. DHAR, A Non-Random Walk Down the Main Street: Impact of Price Trends on Trading Decisions of Individual … . people.cornell.edu. [ Cited by 13 ] LEUTHOLD, 1972, Random Walk and Price Trends: The Live Cattle Futures Market KEIM, D.B. and A. MADHAVAN, 1996. The upstairs market for large-block transactions: analysis and measurement of price effects .

"In prospect theory, loss aversion refers to the tendency for people to strongly prefer avoiding losses than acquiring gains. Some studies suggest that losses are as much as twice as psychologically powerful as gains. Loss aversion was first convincingly demonstrated by Amos Tversky and Daniel Kahneman." Loss aversion - Wikipedia Loss Aversion http://loss-aversion.behaviouralfinance.net/

http://regret.behaviouralfinance.net/ GILOVICH, T., V.H. MEDVEC and D. KAHNEMAN, 1998. Varieties of regret: A debate and partial resolution . Psychological Review. [ Cited by 32 ] (3.82/year) GILOVICH, T., V.H. Regret

Mental Accounting " Mental accounting: Thaler (1980) and Kahneman, Knetch and Thaler (1991)." Taleb (2004) Shefrin (2000) Articles http://mental-accounting.behaviouralfinance.net/

http://prospect-theory.behaviouralfinance.net/ Prospect Theory The most cited paper ever to appear in Econometrica , the prestigious academic journal of economics, was written by the two psychologists Kahneman and Tversky (1979). They present a critique of expected utility theory as a descriptive model of decision making under risk and develop an alternative model, which they call prospect theory . Kahneman and Tversky found empirically that people underweight outcomes that are merely probable in comparison with outcomes that are obtained with certainty; also that people generally discard components that are shared by all prospects under consideration. Under prospect theory, value is assigned to gains and losses rather than to final assets; also probabilities are replaced by decision weights. The value function is defined on deviations from a reference point and is normally concave for gains (implying risk aversion), commonly convex for losses (risk seeking) and is generally steeper for losses than for gains (loss aversion) (see Figure 1).

Webmaster: Martin Sewell References Probabilities must be decimals and sum to one: 1 missing http://prospect-theory.behaviouralfinance.net/cpt-calculator.php Cumulative Prospect Theory Calculator

Prospect theory - Wikipedia, the free encyclopedia http://en.wikipedia.org/wiki/Prospect_theory The theory was developed by Daniel Kahneman , a professor at Princeton University 's Department of Psychology , and Amos Tversky in 1979 as a psychologically more accurate description of preferences compared to expected utility theory . It describes how people choose between probabilistic alternatives and evaluate potential losses and gains . In the original formulation the term prospect referred to a lottery [ citation needed ] . The theory describes the decision processes in two stages, editing and evaluation. In the first, outcomes of the decision are ordered following some heuristic .

Kahneman and Tversky's Prospect Theory Daniel Kahneman and Amos Tversky called their studies of how people manage risk and uncertainty Prospect Theory for no other reason than that it is a catchy, attention-getting name. This is much like Richard Bellman calling his algorithm of multistage decision-making Dynamic Programming because programming was a hot topic at the time he was choosing a label. Kahneman and Tversky's theory, developed over a thirty year period, is however highly important in economics and especially in financial economics. In 2002 Daniel Kahneman shared the Nobel Prize in Economics but unfortunately Amos Tversky had died by that time and did not get his share of the fame. Kahneman and Tversky's Prospect Theory http://www.sjsu.edu/faculty/watkins/prospect.htm

http://changingminds.org/explanations/theories/prospect_theory.htm Tversky and Kahneman told people to assume there was disease affecting 600 people and they had two choices: Program A, where 200 of the 600 people will be saved . Research Prospect Theory

Certainty Effect ROGERS and A. TVERSKY, 1996. Options traders exhibit subadditive decision weights . Journal of Risk and Uncertainty. [ Cited by 71 ] (5.72/year) http://certainty-effect.behaviouralfinance.net/

Regret

Mental Accounting

Kahneman has spoken at TED 2010 about the experience of well being and how this might impact our choices: very interesting and with far reaching consequences. Check: http://pear.ly/786O by cassius Mar 2

Les implications des travaux de Khaneman & Tversky sur la rationnalité limitée sont considérables : elles vont de la théorie de l'organisation à la théorie de la décision, voire... à l'ergonomie by Patrice Oct 10