Behavioral Economics - Loss Aversion and the Value Function

This video describes how loss aversion follows from the prospect theory value function. As told to my students at Northeastern University.

By Jodi Beggs - Economists Do It With Models

[AMANARORABIT]

I've studied about curves and many other topics in business economics for the entire semester and got good grades.
thanks for uploading these all videos.

[ajmarr]

Good presentation, but with one important error.
In classical economics, humans are judged to be broadly rational creatures, while behavioral economics demonstrates that there are intrinsic limits to rationality, or to major decision making. A common thread in both disciplines is that decision is dispassionate, with affect being the byproduct of cognition. In contrast, for the study of mammalian decision making or ‘learning theory’, and as rendered through contemporary affective neuroscience, affect is an unrelenting, distorting, and animating factor for all cognition and thus for all momentary as well as major decisions. In other words, everything we think and do is influenced by conscious or non-consciously continuously perceived affect, or emotion, and to be effective, we have to understand how affect guides every momentary choice we make. The fact that behavioral economics is based on social psychological experiments, rather than deriving from first principles as to how incentive motivation is instantiated in human brains makes its conclusions piecemeal and disjointed. Or in the words of the economist David Gal (linked below), “behavioral economists are too often concerned with describing how human behavior deviates from the assumptions of standard economic models, rather than with understanding why people behave the way they do.”
The following linked treatise for a lay audience, written in consultation and with the endorsement of the distinguished affective neuroscientist Kent Berridge, perhaps can provide a counterpoint to this perspective that may illuminate, confirm, and often disconfirm many ideas in behavioral economics. Also linked is an history of incentive motivation by Dr. Berridge.

[stephenfrost]

Loss aversion does not follow from prospect theory. Prospect theory is a positive theory which attempts to model people's behaviors. Jodie seems to be implying it is a normative theory.

Kahmeman and Tversky incorporated loss aversion into prospect theory with the value function. It is an input to the development rather than following from.