Behavioral Economics · intro
What moves on the Prospect Theory Value Function diagram
Loss framing engages the steeper loss branch (λ ≈ 2): identical outcomes feel worse framed as losses.
Value is felt relative to a reference pointreference pointThe benchmark (often the status quo) against which outcomes are felt as gains or losses..
Describe the SAME outcome as a loss and the steep left side of the curve takes over, watch it deepen.
A $50 'surcharge' enrages; a forgone $50 'discount' shrugs. Same money, different side of the kink.
Examiners ask this as: loss framing, reference point shift, endowment.
Other scenarios on Prospect Theory Value Function