Gain and loss is all down to perception, as as a person who may perceive something entirely different than another individual may e.g a glass being half empty or a glass being half full. depending on how it is looked at will depend if a person takes it as a loss or a gain. According to the prospect theory out outcomes are experienced as gains or loss according the the individuals subjective reference point.
Subject value is said to be a concave function of utility and a steeper function in the domain of loss's.
Framing is said what can alter an individuals choice making decision, as framing is controlled by the formulation of the problem and partly by the individuals character as well as there habits likes and dislikes.
The effects of framing are mainly assessed by using two different types of criteria intergroup difference criterion and reference distribution Intergroup examines if there's a difference between the two relevant framing conditions. With reference distribution here it is required that the difference between framing is looked at and analysed .
Thursday, 18 November 2010
Tuesday, 9 November 2010
Prospect Theory
Prospect theory consist of two stages the editing and evaluation stage
Editing stage for the first stage is to simplify the problem and then look a solution.
Once you've found solution then you go move the decoding stage which is based on gains and loss due to your expectations.
Then you move to the combination stage which looks at the probability which an event is likely to occur.
After this comes to the segmentation stage here is where something people might do when separating problems for their outcomes.
The last stage in the editing stage is the councilation stage which is all about dismissing the common values, any values that are the same are not taken into account when counciling out which one to choose.
Then comes the evaluation stage
This stage has two components the value function and the weighting function.
In the value function is all to do with your expectations, if the values don't meet the expectations then it is perceived as a loss. Also here you more likely to become less sensitive to gains as the further you get from your expectations.
The next stage in the evaluation is the weighting function with this part of the evaluation stage the likely hood of things occurring here is due to sensitivity to changes in probabilities. The moment something is unlikely to occur it has a big impact on the person. here also small probabilities are overweighted bigger than they actually are
Editing stage for the first stage is to simplify the problem and then look a solution.
Once you've found solution then you go move the decoding stage which is based on gains and loss due to your expectations.
Then you move to the combination stage which looks at the probability which an event is likely to occur.
After this comes to the segmentation stage here is where something people might do when separating problems for their outcomes.
The last stage in the editing stage is the councilation stage which is all about dismissing the common values, any values that are the same are not taken into account when counciling out which one to choose.
Then comes the evaluation stage
This stage has two components the value function and the weighting function.
In the value function is all to do with your expectations, if the values don't meet the expectations then it is perceived as a loss. Also here you more likely to become less sensitive to gains as the further you get from your expectations.
The next stage in the evaluation is the weighting function with this part of the evaluation stage the likely hood of things occurring here is due to sensitivity to changes in probabilities. The moment something is unlikely to occur it has a big impact on the person. here also small probabilities are overweighted bigger than they actually are
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