The Origin of Prospect Theory, or Testing the Intuitive Statistician

Floris Heukelom ()
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Floris Heukelom: Faculty of Economics, Universiteit van Amsterdam

No 05-111/2, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: The origin of prospect theory is the desire to test the intuitive statistician in the real world. The development of this theory by the cognitive psychologists Kahneman and Tversky can be traced to the formers work in cognitive psychophysics, in which deviations from average behavior are termed (statistical) errors; and the latters work on decision theory, with its normative vs. descriptive framework. The combination of these two types of probabilistic psychology culminated in a new descriptive theory of human decision making in the real world, coined Heuristics and Biases. The 1979 Econometrica article applies this new descriptive theory to economists EUT. It equates the intuitive statistician with the rational economic man and shows how it descriptively fails.

Keywords: Kahneman and Tversky; Prospect Theory; Intuitive Statistician; Heuristics and Biases (search for similar items in EconPapers)
JEL-codes: B31 B41 D01 D81 (search for similar items in EconPapers)
Date: 2005-12-08
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Citations: View citations in EconPapers (1)

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