The editing phase organizes and reformulates the options to simplify later evaluation and choice. Develops an alternative theory of individual decision making under risk, called prospect theory, developed for simple prospects with monetary outcomes and stated probabilities, in which value is given to gains and losses (i.e., changes in wealth or welfare) rather than to final assets, and probabilities are replaced by decision weights. In choices where gains are replaced by losses, the pattern is called the 'reflection effect.' People discard components shared by all prospects under consideration, a tendency called the 'isolation effect.' Also shows that in choice situations, preferences may be altered by different representations of probabilities. People overweight outcomes considered certain, relative to outcomes that are merely probable, a situation called the 'certainty effect.' This effect contributes to risk aversion in choices involving sure gains, and to risk seeking in choices involving sure losses.

Considers results of responses to various hypothetical decision situations under risk and shows results that violate the tenets of expected utility theory. In expected utility theory, utilities of outcomes are weighted by their probabilities. Presents a critique of expected utility theory as a descriptive model of decision making under risk, and argues that common forms of utility theory are not adequate, and proposes an alternative theory of choice under risk called prospect theory. All rights reserved.Īnalysis of decision making under risk has been dominated by expected utility theory, which generally accounts for people's actions. This is one of the most engaging and provocative books to come along in many years. Nudge offers a unique new take-from neither the left nor the right-on many hot-button issues, for individuals and governments alike.

Using colorful examples from the most important aspects of life, Thaler and Sunstein demonstrate how thoughtful 'choice architecture' can be established to nudge us in beneficial directions without restricting freedom of choice. They show that by knowing how people think, we can design choice environments that make it easier for people to choose what is best for themselves, their families, and their society. Thaler and Sunstein invite us to enter an alternative world, one that takes our humanness as a given. Our mistakes make us poorer and less healthy we often make bad decisions involving education, personal finance, health care, mortgages and credit cards, the family, and even the planet itself. The reason, the authors explain, is that, being human, we all are susceptible to various biases that can lead us to blunder. Every day, we make decisions on topics ranging from personal investments to schools for our children to the meals we eat to the causes we champion.

The undoing project lewis