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Many papers in organization theory and strategy use prospect theory, but few derive their hypotheses from prospect theory's formal model. This paper develops a prospect theory model of resource allocation under risk where projects have both positive and negative adjusted payoffs. The model assumes consistent value (rather than profit) maximizing behavior and demonstrates how resources, risk propensity, and reference levels interact to determine allocations to risky projects. The analysis shows that prospect theory's parameters interact in complex ways to influence risk taking, which makes simple predictions difficult. Overall, loss aversion and the reference point dominate the results, with curvature of the value function playing a secondary role and the maximum risk aversion occurring for firms near their reference points, not for firms above their reference points.

Research supports the efficacy of prospect theory over utility maximization for consumer investment in electricity saving equipment. The findings have implications for designing electric utility programs to promote electricity conservation. Prospect theory describes, explains and organizes consumer behavior that is contrary to consumers maximizing a stable utility function. The results are similar across three ethnic groups.

"Risk Assessment: Prospect Theory and Civil–Military Affairs" published on by Oxford University Press.

There is widespread agreement about a combination of attributes that someone needs to possess if they are to be counted as a conservative. They need to lack definite political ideals, goals or ends, to prefer the political status quo to its alternatives, and to be risk averse. Why should these three highly distinct attributes, which are widely believed to be characteristic of adherents to a significant political position, cluster together? Here I draw on prospect theory to develop an explanation for the clustering of attributes that is characteristic of conservatives. I argue that a lack of political ideals is the underlying driver of conservatism. I will provide reason to believe that people who lack political ideals are disposed to prefer the political status quo to its alternatives; and reason to believe that people who prefer the political status quo to its alternatives are disposed to be risk averse, at least with respect to significantly many of the risks that arise in the social and political domain. I also consider and reject some other potential explanations for the clustering of attributes that is characteristic of conservatives and sketch some policy implications that follow from the explanation I develop.

Counterterrorism decisions have been an intense area of research in recent years. Both decision analysis and game theory have been used to model such decisions, and more recently approaches have been developed that combine the techniques of the two disciplines. However, each of these approaches assumes that the attacker is maximizing its utility. Experimental research shows that human beings do not make decisions by maximizing expected utility without aid, but instead deviate in specific ways such as loss aversion or likelihood insensitivity. In this article, we modify existing methods for counterterrorism decisions. We keep expected utility as the defender's paradigm to seek for the rational decision, but we use prospect theory to solve for the attacker's decision to descriptively model the attacker's loss aversion and likelihood insensitivity. We study the effects of this approach in a critical decision, whether to screen containers entering the United States for radioactive materials. We find that the defender's optimal decision is sensitive to the attacker's levels of loss aversion and likelihood insensitivity, meaning that understanding such descriptive decision effects is important in making such decisions.