Prospect Theory

[Page 670]Prospect theory is a psychological theory of choice under conditions of risk and uncertainty, which accurately describes people’s choices. The originators of prospect theory, the psychologists Daniel Kahneman and Amos Tversky, felt that such a descriptively accurate theory was needed because people’s choices deviated systematically from the predictions of the then—in the 1970s—dominant theory of choice under risk: expected utility theory. Decision making by political actors typically takes place under conditions of risk and uncertainty, suggesting that prospect theory has much to offer to political science. This entry provides a summary of prospect theory’s key characteristics, discusses some applications in political science, and addresses some problems and, if existing, their solutions that arise in prospect-theoretical applications in political science.