Q

How does prospect theory explain the concept of reference dependence?

From 5 years of verified research · Vassili Sandqvist
A

Prospect theory posits that outcomes are evaluated relative to a reference point rather than in absolute terms. This means that the perceived value of an outcome, such as a gain or loss, is contingent upon one's current situation or expectations, leading to different emotional responses based on whether the outcome is viewed as a gain or a loss.

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