Choices, Values, and Frames

This book presents the definitive exposition of 'prospect theory', a compelling alternative to the classical utility theory of choice. Building on the 1982 volume, Judgement Under Uncertainty, this book brings together seminal papers on prospect theory from economists, decision theorists, and psychologists, including the work of the late Amos Tversky, whose contributions are collected here for the first time. While remaining within a rational choice framework, prospect theory delivers more accurate, empirically verified predictions in key test cases, as well as helping to explain many complex, real-world puzzles. In this volume, it is brought to bear on phenomena as diverse as the principles of legal compensation, the equity premium puzzle in financial markets, and the number of hours that New York cab drivers choose to drive on rainy days. Theoretically elegant and empirically robust, this volume shows how prospect theory has matured into a new science of decision making.

Table of Contents:
1. Choices, values, and frames; Part I. Prospect Theory and Extensions: 2. Prospect theory: an analysis of decision under risk; 3. Advances in prospect theory: cumulative representation of uncertainty; Part II. The Certainty Effect and the Weighting Function: 4. Compound invariant weighting function in prospect theory; 5. Weighing risk and uncertainty; 6. A belief-based account of decision under uncertainty; Part III. Loss Aversion and the Value Function: 7. Loss aversion in riskless choice: a reference-dependent model; 8. Anomalies: the endowment effect, loss aversion, and status quo bias; 9. The endowment effect and evidence of nonreversible indifference curves; 10. A test of the theory of reference-dependent preferences; Part IV. Framing and Mental Accounting: 11. Rational choice and the framing of decisions; 12. Framing, probability distortions, and insurance decisions; 13. Mental accounting matters; Part V. Applications: 14. Toward a positive theory of consumer choice; 15. Prospect theory in the wild: evidence from the field; 16. Myopic loss aversion and the equity premium puzzle; 17. Fairness as a constraint on profit seeking: entitlements in the market; 18. Money illusion; 19. Labor supply of New York City cab drivers: one day at a time; 20. Are investors reluctant to realize their losses?; 21. Timid choices and bold forecasts: a cognitive perspective on risk taking; 22. Overconfidence and excess entry: an experimental approach; 23. Judicial choice and disparities between measures of economic values; 24. Contrasting rational and psychological analyses of political choice; 25. Conflict resolution: a cognitive perspective; Part VI. The Multiplicity of Value: Reversals of Preference: 26. The construction of preference; 27. Contingent weighting in judgment and choice; 28. Context-dependent preferences; 29. Ambiguity aversion and comparative ignorance; 30. The evaluability hypothesis: explaining joint-separate preference reversals and beyond; Part VII. Choice over Time: 31. Preferences for sequences of outcomes; 32. Anomalies in intertemporal choice: evidence and an interpretation; Part VIII. Alternative Conceptions of Value: 33. Reason-based choice; 34. Value elicitation: is there anything in there?; 35. Economists have preferences, psychologists have attitudes: an analysis of dollar responses to public issues; Part IX. Experienced Utility: 36. Endowments and contrast in judgments of well-being; 37. A bias in the prediction of tastes; 38. The effect of purchase quantity and timing on variety-seeking behavior; 39. Back to Bentham? Explorations of expereiences utility; 40. New challenges to the rationality assumption.

Review :
'Daniel Kahneman and the late Amos Tversky have started a new perspective on the traditional economic categories of choice, decision, and value. A series of experimental and empirical studies by them and others have rejected traditional economic assumptions of rationality. Even more importantly, these scholars have developed alternative generalizations with significant predictive power and have found empirical verification for them. This outstanding collection of studies will make these new results widely accessible.' Kenneth J. Arrow, Joan Kenney Professor of Economics, Emeritus and Professor of Operations Research, Emeritus, Stanford University '… full of great articles, including many of the most important ever written about decision research … More than compensating for any shortcomings is a fascinating and moving introduction written by Kahneman about his collaboration with Tversky. This is inspiring stuff. Even if you already have most of the articles from the book in your file drawer, it is worth getting just for this introduction.' Journal of Behavioural Decision Making 'This is an amazing resource.' Kevin Grell, Pitzer College