The Prospect Theory Value Function

The Prospect Theory Value Function describes how people evaluate potential gains and losses in decision-making. It shows that we feel losses more intensely than gains of the same size, meaning losing $100 feels worse than gaining $100 feels good. The curve is steeper for losses, indicating that we are risk-averse when it comes to gains but risk-seeking when it comes to losses. This leads to choices that may seem irrational based on pure logic, as the emotional impact of losses can drive behavior in unexpected ways.