Prospect Theory Quotes

“I think we have put a lot of emphasis on, of course, material wellbeing. By human economic betterment we mean material betterment. That’s economic enterprise, and that’s what Adam Smith worked out in his second book. But the first book had to do with human social betterment—all the things we do to make our lives better because we grow up in a social world. We learn in growing up that some actions are hurtful to others and they resent it, and some actions are beneficial to others, and they feel good about that and they tend to reward the beneficial actions. Those two sources account for a lot of the norms that we live by. Also, Adam Smith understood that—and I think this is remarkable—he understood that the downside was potentially far greater than the upside. So there is a fundamental asymmetry between gain and loss. And he didn’t just postulate that; he derived it from the idea there is an asymmetry between our joy and our sorrow. He got it from more fundamental considerations. Psychologists did not discover that until some 150 to 200 years later.”
― Vernon L. Smith, The Evidence of Things Not Seen: Reflections on Faith, Science, and Economics

“If the situation is framed in a way that emphasizes a loss compared to your starting point, you might avoid the risk—even if the final amount would still be more than what you currently have. Conversely, if the risk is presented as a chance to gain relative to your current position, you might be more willing to take it.”
― Daniel Kahneman