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Prospect Theory

Prospect theory is famous in Behavioral Economics .

Expect-Utility Theory

For example, we feel the difference between 100000 yen and 99910 yen is small, the difference between 100 yen and 10 yen is large. But the difference of these calculations is same, 90 yen.

When we use expectation number as an index, there is a problem. Expect-effect theory uses the product of expectation and utility-function. By this function, this theory calculates the difference of value.

Prospect Theory

This theory explains that same prices do not mean same value and value depends on the situations. This theory is also the feeling of probabilities. There are two points.

• The value of which often happens (probability is high) is low.
• Even if prices are same, the value of loss is greater than the value of profit.

In Environmental Assessment and Environmental Economics, it means "the value of recovery is higher than improvement".

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