This podcast episode delves into the groundbreaking insights of Prospect Theory, which revolutionizes our understanding of decision-making under risk. The episode explores how our emotions heavily influence our choices, particularly through concepts like the certainty effect and loss aversion. Listeners will learn that humans often prefer guaranteed outcomes over riskier, potentially more rewarding options, highlighting our innate desire for certainty. The discussion also reveals how, when faced with potential loss, people tend to become risk-seeking, contradicting the rational decision-making model previously held. By unpacking these psychological patterns, the episode encourages us to become more aware of our decision-making processes and to recognize the power we have in shaping our choices for better outcomes.

Paper Referenced:

Kahneman, D., & Tversky, A. (1979). Prospect Theory: An Analysis of Decision under Risk. Econometrica, 47(2), 263–291. https://doi.org/10.2307/1914185

Link - https://www.jstor.org/stable/1914185

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