Thirty Years of Prospect Theory in Economics: A Review and Assessment
Nicholas C. Barberis
Journal of Economic Perspectives, 2013, vol. 27, issue 1, pages 173-96
In 1979, Daniel Kahneman and Amos Tversky, published a paper in Econometrica titled "Prospect Theory: An Analysis of Decision under Risk." The paper presented a new model of risk attitudes called "prospect theory," which elegantly captured the experimental evidence on risk taking, including the documented violations of expected utility. More than 30 years later, prospect theory is still widely viewed as the best available description of how people evaluate risk in experimental settings. However, there are still relatively few well-known and broadly accepted applications of prospect theory in economics. One might be tempted to conclude that, even if prospect theory is an excellent description of behavior in experimental settings, it is less relevant outside the laboratory. In my view, this lesson would be incorrect. Over the past decade, researchers in the field of behavioral economics have put a lot of thought into how prospect theory should be applied in economic settings. This effort is bearing fruit. A significant body of theoretical work now incorporates the ideas in prospect theory into more traditional models of economic behavior, and a growing body of empirical work tests the predictions of these new theories. I am optimistic that some insights of prospect theory will eventually find a permanent and significant place in mainstream economic analysis.
JEL-codes: D81 (search for similar items in EconPapers)
Note: DOI: 10.1257/jep.27.1.173
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (54) Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: http://EconPapers.repec.org/RePEc:aea:jecper:v:27:y:2013:i:1:p:173-96
Ordering information: This journal article can be ordered from
Access Statistics for this article
Journal of Economic Perspectives is currently edited by David H. Autor
More articles in Journal of Economic Perspectives from American Economic Association Contact information at EDIRC.
Series data maintained by Jane Voros ().