Prospect Theory and Strategic Decision-Making

Galia Rosen-Schwarz; Zur Shapira

doi:10.1057/978-1-137-00772-8_560

Prospect Theory and Strategic Decision-Making

Galia Rosen-Schwarz
, Zur Shapira^*

^*Corresponding author for this work

Research output: Chapter in Book/Report/Conference proceeding › Chapter › peer-review

Abstract

Prospect theory is one of the most influential theories of decision-making under risk. The theory draws on psychology and has been proposed as an alternative to expected utility theory. It substitutes a value function for the utility function, and a decision weights function for probabilities. Its main ideas are that changes in wealth are more important than absolute levels of wealth for describing risk-taking, and that decision weights is a non-linear function of probability. We describe the theory’s main assumptions and its effects on strategy research and suggest a possible direction for its use in future research.

Original language	English
Title of host publication	The Palgrave Encyclopedia of Strategic Management
Publisher	Springer Science+Business Media
Pages	1365-1369
Number of pages	5
ISBN (Electronic)	9781137007728
ISBN (Print)	9781137491909
DOIs	https://doi.org/10.1057/978-1-137-00772-8_560
State	Published - 1 Jan 2018
Externally published	Yes

Bibliographical note

Publisher Copyright:
© Macmillan Publishers Ltd., part of Springer Nature 2018

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Prospect Theory and Strategic Decision-Making

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