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A Prospect Dynamic Model of Decision-Making

Author

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  • Michael D. Kanner

    (University of Colorado, Boulder, kanner@sobek.colorado.edu)

Abstract

In their 1979 article, Kahneman and Tversky introduced the world to the prospect theory of decision-making under risk as a critique of expected utility theory and its emphasis on final assets. Critics have noted that despite successful replications, its application outside the experimental arena is questionable. This article answers these critics by developing a formal model and theory of framing within prospect theory. Starting with an expected utility model, elements of risk, change and risk attitude are introduced in the context of the decision-maker’s belief sets and assumptions. The result is a finding that framing works because individual expectations shift when confidence in assumptions about the problem change. In conclusion, a number of analytic tools are applied to explore the dynamics of the model and the effect of changing a decision-maker’s view of the world and perception of a specific problem.

Suggested Citation

  • Michael D. Kanner, 2005. "A Prospect Dynamic Model of Decision-Making," Journal of Theoretical Politics, , vol. 17(3), pages 311-338, July.
    • Handle: RePEc:sae:jothpo:v:17:y:2005:i:3:p:311-338
    DOI: 10.1177/0951629805052882
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    References listed on IDEAS

    as
    1. Herbert A. Simon, 1955. "A Behavioral Model of Rational Choice," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 69(1), pages 99-118.
    2. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    3. Simon, Herbert A., 1985. "Human Nature in Politics: The Dialogue of Psychology with Political Science," American Political Science Review, Cambridge University Press, vol. 79(2), pages 293-304, June.
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