Is prospect theory still a thing? I distinctly remember reading that the main empirical result it's based on it's based on - loss aversion, didn't replicate except for large sums of money.

And for large sums of money, you don't need prospect theory to explain loss aversion. Plain old marginal utility will do.

▲

timshell 3 days ago | parent | next [-]

Great question! One of the core results of this paper was to explain this discrepancy. Basically, we found a 'mixture of theories' - a hybrid of prospect theory and expected utility theory, where people essentially arbitrate between one of the two decision-making mechanisms depending on the complexity of the gamble.

▲

gsf_emergency_2 3 days ago | parent | next [-]

Curious that you can "mix" PT & EU functionals (with perceptron) but not the corresponding "decision-making mechanisms"..?

(I might have missed an explicit description of these "decision-making mechanisms" in the paper)

>we find that the ... most complex class ... lies outside the simple classes

Another curious statenent

	▲	timshell 3 days ago \| parent [-]
		> Curious that you can "mix" PT & EU functionals (with perceptron) but not the corresponding "decision-making mechanisms"..? Great push. We actually can't make any mechanistic claims from the data/math in this paper. From an ML prediction standpoint, we're mixing a PT and EU theory together. But to what extent that is the actual cognitive process we have to remain agnostic about. That being said, a reason this arbitration between EU and PT is intriguing is because there's a lot of work about arbitration between dual process models in psychology (System 1 and 2; model-free and model-based; labor versus leisure; etc.)

▲

3 days ago | parent | prev [-]

[deleted]

▲

throwaway81523 3 days ago | parent | prev [-]

Prospect theory is an analysis of how people make decisions in certain contexts that don't line up with utility maximization. That is, it studies a psychological phenomoneon. Think of a $1.99 price tag vs a $2.00 price tag. The difference looks much larger than it is. That's psychology.

It's unsurprising that the effects are seen most when the amounts are small. With large amounts, people think harder and are more likely to follow rational choice theory.