# Prospect Theory

> A behavioral-economics theory developed by Daniel Kahneman and Amos Tversky that describes how people actually evaluate gains and losses under risk — as distinct from how classical economics assumes they should.

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## Definition

A behavioral-economics theory developed by Daniel Kahneman and Amos Tversky that describes how people actually evaluate gains and losses under risk — as distinct from how classical economics assumes they should. Prospect theory's central findings are that losses loom roughly twice as large as equivalent gains (loss aversion), that people are risk-averse over gains but risk-seeking over losses, and that probabilities are systematically distorted at the extremes. The theory earned Kahneman the 2002 Nobel Prize in Economics and reshaped pricing, negotiation, and product design.


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