Kahneman-Tversky Model

The Kahneman-Tversky Model, developed by psychologists Daniel Kahneman and Amos Tversky, explores how people make decisions under uncertainty. It highlights that individuals often rely on mental shortcuts, or heuristics, which can lead to biases and errors in judgment. For instance, we might overestimate the likelihood of dramatic events based on recent news, rather than on actual probabilities. The model also introduces concepts like loss aversion, where the pain of losing something is felt more acutely than the pleasure of gaining something of equal value, influencing how we make choices in uncertain situations.