Prospect Theory
Chapter summary from Thinking, Fast and Slow by Daniel Kahneman.
Prospect theory replaces the smooth rational chooser with a mind that treats losses and gains asymmetrically.
Losses loom larger than gains. A small loss can feel more painful than an equivalent gain feels pleasant. The value curve is steep near the reference point and flatter at the extremes.
This produces predictable patterns: risk aversion in gains, risk seeking in losses, and strong sensitivity to framing. The same choice looks different when coded as a loss rather than a foregone gain.
The fast system drives these preferences with emotion; the slow system can recognize the pattern, yet it often cannot erase the feeling.
Prospect theory does not make you more rational. It makes you more legible. Once you know the shape of value, you can predict when people will gamble, settle, or fight.
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