PROSPECT THEORY: AN ANALYSIS oF DECISION UNDER RISK BY DANIEL KAHNEMAN AND AMos TVERSKY This paper presents a critique of expected utility theory as a descriptive model of Choices making under and develops an alternative model, called prospect theory among risky prospects exhibit several pervasive effects that are inconsistent with the basic tenets of utility theory. In particular, people underweight outcomes that merely probable in comparison with outcomes that are obtained with certainty. This tendency, called the certainty effect, contributes to risk aversion gains and to risk seeking in choices involving sure losses. In addition, people discard components that are shared by all prospects under consider This tendency, called the isolation effect, leads to inconsistent preferences when the same choice is presented in different forms. An alternative theory of choice is developed, is assigned to gains and losses rather than to final assets and in whicli probabilities are replaced by decision weights. The value function is normally concave gains, convex for losses, and is generally steeper for losses than for gains. Decision weights a generally lower than the corresponding probabilities, except in the range of low prob abilities. Overweighting of bilities may contribute to the attractiveness of both insurance and gambling.