The Prospect Theory

Abstract

This paper argues the process of forming a new intelligent platform research direction in the study of economic phenomena – Prospect Theory found by Kahneman and Tversky (1992), which belong to neo-classic economic theory – Behaviour Economics. The authors work symbolises a shift in accents in research to develop formal models of individual behaviour under risk and uncertainty, choosing the process of their experimental and empirical corroboration and clarifying the consistency of the traditional theory with consequences of the facts of reality. This work also identified further research made by representatives of behavioural economics in decision-making under risk and uncertainty and conclusions are drawn regarding the views of using the data of psychology in the field of economic theory.

Keywords: Prospect Theory (PT), Behaviour Economics (BE)

JEL Classification: G1

1. Introduction

In the present time there is a universally recognised opinion that modern economics doesn't look as one integrated, monolith building with as similar program and methodology for everyone. It is looks more like a total of different courses, directions and thoughts which working on one task - theoretical reflection of economic processes which go parallel with reality and present of practical recommendation for the management of the economy. Along with this it should be noted that the tone of this work given by representatives of the neo-classical economists.

The roots of behavioural economic theory are in increasing the realism of the psychological foundation of economic analysis as such where we will improve the quality of economic theory in its own self-limits, allowing the emergence of different theoretical constructions which will generate prediction of the observed phenomena and propose practical recommendations.

It should be noted that it does not mean the rejection of neo-classical approach to economics and all its contents, primary concepts of...