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The Origin of Prospect Theory, or Testing the Intuitive Statistician


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  • Floris Heukelom

    (Faculty of Economics, Universiteit van Amsterdam)

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    The origin of prospect theory is the desire to test the intuitive statistician in the real world. The development of this theory by the cognitive psychologists Kahneman and Tversky can be traced to the formers work in cognitive psychophysics, in which deviations from average behavior are termed (statistical) errors; and the latters work on decision theory, with its normative vs. descriptive framework. The combination of these two types of probabilistic psychology culminated in a new descriptive theory of human decision making in the real world, coined Heuristics and Biases. The 1979 Econometrica article applies this new descriptive theory to economists EUT. It equates the intuitive statistician with the rational economic man and shows how it descriptively fails.

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    Bibliographic Info

    Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 05-111/2.

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    Date of creation: 08 Dec 2005
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    Handle: RePEc:dgr:uvatin:20050111

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    Keywords: Kahneman and Tversky; Prospect Theory; Intuitive Statistician; Heuristics and Biases;

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    1. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
    2. Tversky, Amos & Kahneman, Daniel, 1986. "Rational Choice and the Framing of Decisions," The Journal of Business, University of Chicago Press, vol. 59(4), pages S251-78, October.
    3. Laibson, David & Zeckhauser, Richard, 1998. "Amos Tversky and the Ascent of Behavioral Economics," Journal of Risk and Uncertainty, Springer, vol. 16(1), pages 7-47, April.
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