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expected utility theory
psychological value can be placed onto things. We value a
gambling option less compared to a sure thing of winning money
Prospect theory
reference points inform decision based on current situation
How are decisions made according to the prospect theory?
based on gains vs. losses from what we have now
loss aversion
people often try to avoid losses more than seeking gains
diminishing sensitivity
as gamble vs sure thing amounts get higher, you are more likely to choose gamble (risk tolerant)
Metacognition
thinking about thinking