Question

Question: Please create a table comparing the differences of expected utility theory and prospect theory. Please given an example for each difference. Are the current answers comparisons correct? And can you please help me complete the examples missing if so

Expected Utility Theory	Prospect Theory	Example
The basic objects of preference are states of wealth (including non-monetary things)	The basic objects of preference are changes from a neutral reference point (gains and losses)
Risk averse everywhere	Risk averse for gains, risk seeking for losses	Choose: Get $900 or take a 90% chance of winning $1,000 & 10% change of 0. Most people take the $900. However, if asked to choose between losing $900 and take a 90% chance of losing $1,000, most would choose the 2nd option. Therefore, risk seeking to avoid losses
Loss aversion can’t be defined	Implies loss aversion	The pleasure of unexpectedly finding $100 is less significant than the pain of unexpectedly losing $100
People evaluate % linearly	People evaluate probabilities non-linearly	If men have a 2% chance of contracting disease A, and women have a 1% chance humans view this as a man having 2x as much risk. However, if men have a 33% chance, and women 32%, the difference isn’t viewed as significant
Problem description doesn’t affect the situation as long as the problem is the same	Problem description can change the reference point; hence the definition of gains + losses can change	600 people have a life-threatening disease. Given the choice to give them treatment of either treatment A) 200 people will be saved or treatment B) 1/3 probability that 600 will be saved, and 2/3 will be saved a massive majority chose treatment A. however when this when the same group was given the option of A) 400 people will die and B) 1/3 that nobody dies and 2/3 that everybody will die most chose the second option even though the % didn’t change, simply the framing of the problem
All outcomes are evaluated with respect to one big account	People evaluate gains and losses with respect to mental accounts

Answer 1

You have constructed your answer well. However, try to consider the following additional points and examples.

Expected Utility Theory	Prospect Theory	Example
The basic objects of preference are states of wealth (including non-monetary things)	The basic objects of preference are changes from a neutral reference point (gains and losses). The idea is that people feel more sadness for their losses than happiness for possible gains and they therefore get ‘scared’ of the sure loss and instead decide to take risks.	A doctor's appointment may result in the early detection and treatment of a disease, or it may be a waste of money. Under the expected utility theory,Most people would choose to go for the appointment as the rational decision which helps to avoid additional medical costs later. Prospect theory is at work when a sole income provider in a family decides against a life insurance because s/he sees the payment of premium amounts for the insurance cover as a loss of money. Here she concentrates on the losses of money involved rather than assess the insurance benefits in the form of the final outcome.
Risk averse everywhere	Risk averse for gains, risk seeking for losses	Choose: Get $900 or take a 90% chance of winning $1,000 & 10% change of 0. Most people take the $900. However, if asked to choose between losing $900 and take a 90% chance of losing $1,000, most would choose the 2nd option. Therefore, risk seeking to avoid losses
Loss aversion can’t be defined	Implies loss aversion	The pleasure of unexpectedly finding $100 is less significant than the pain of unexpectedly losing $100
People evaluate % linearly	People evaluate probabilities non-linearly	If men have a 2% chance of contracting disease A, and women have a 1% chance humans view this as a man having 2x as much risk. However, if men have a 33% chance, and women 32%, the difference isn’t viewed as significant
Problem description doesn’t affect the situation as long as the problem is the same	Problem description can change the reference point; hence the definition of gains + losses can change	600 people have a life-threatening disease. Given the choice to give them treatment of either treatment A) 200 people will be saved or treatment B) 1/3 probability that 600 will be saved, and 2/3 will be saved a massive majority chose treatment A. however when this when the same group was given the option of A) 400 people will die and B) 1/3 that nobody dies and 2/3 that everybody will die most chose the second option even though the % didn’t change, simply the framing of the problem
All outcomes are evaluated with respect to one big account. All outcomes are evaluated with respect to one big account. It concerns itself with how decisions under uncertainty should be made (follows a prescriptive approach)	People evaluate gains and losses with respect to mental accounts. It is concerned with how decisions are actually made (a descriptive approach).	Expected Utility theory would be at work when a consumer buys an investment bond based on the market evaluation or value of the investment scheme and not the annual fluctuations in the value of the bond. In terms of the assessment of outcome in prospect theory, an example is the reluctance of investors to sell stocks that lose value, which comes out of loss aversion.