4. Relationship to Prospect Theory
To my knowledge,the cases on risk seeking thatI presentin this paper have notthus far been linked
to Prospect Theory, possibly for three reasons:
i. These cases and others of the same genre do not share obvious functional relationships that would
allow for natural clustering and investigation by specialists in well-defined lines of business. In
particular, the cases presented here represent decision situations in different areas of business and
different specialties, varying from credit derivatives to trading in copper or oil.
ii. Academics and practitioners in management and financial economics have examined some of
these cases mainly to document failures in internal controls and accounting systems. Invariably,
they note the lessons learned relate to (a) the consequences of weak internal controls, (b) excessive
leverage, and (c) overreliance on quantitative models.
iii. The evidence is not systematically structured to allow for applying rigorous statistical analysis, as
is the normal case in a well-designed empirical study.