Understanding Prospect Theory and Decision-Making

Have you ever wondered why you buy lottery tickets even though you know you’ll almost certainly

lose… and why you also pay for insurance you hope you’ll never use? Why one tiny chance

of winning feels unbelievably exciting… and one tiny chance of losing feels terrifying?

Why sometimes you play it safe—and other times you suddenly become a risk-seeking maniac?

It turns out your brain has been following a secret set of rules. Rules that don’t

match mathematics. Rules that don’t match economics. Rules that don’t even match common

sense. And in 1979, two psychologists cracked open this hidden system—and

revealed that nearly everything we thought we knew about decision-making under risk was wrong. Today,