Behavior Economics and Prospect Theory: A Review

Abstract

Behavior economics combines psychological research and economic research properly, reveals the decision-making mechanism under uncertainty, and opens up a whole new field of research. As a basic theory of behavior economics, prospect theory is a good descriptive model of risk decision making in recent decades. Its emergence is a challenge to the theory of expected utility, and even an alternative to the theory of expected utility. This paper gives an overview of behavior economics and prospect theory, including their development history and basic content. Besides, this paper summarizes the development trend of behavior economics in the future.