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Risk is a central feature of political decision making. Prospect theory, an empirically correct theory of choice under risk that deals precisely with this condition, therefore seems to have much to offer political science. Prospect theory's central finding is that individuals' attitude toward risk depends on whether they face losses or gains. Confronting gains, individuals are risk averse in their decision making; confronting losses, they are risk accepting. Where do these preferences come from? Do they also hold for collective decision making? How can prospect theory help us to solve puzzles in political science? This article addresses these questions by discussing some advances in evolutionary biology, behavioural economics, psychology, neuro-economics and political science. The article shows that there is increasing evidence that prospect theory preferences have an evolutionary origin and that these preferences extend to collective decision making. Moreover, it demonstrates that political science can indeed gain from applying prospect theory, as insights from prospect theory help to solve puzzles such as why some governments pursue electorally risky welfare state reform but others do not.

PROSPECT THEORY SUGGESTS THAT INDIVIDUALS' ORIENTATIONS TOWARD RISK AFFECT PEOPLE'S BEHAVIOR. THIS ESSAY CONSIDERS POLITICAL IMPLICATIONS, EXPLORING THE EXTENT TO WHICH PEOPLE'S VIEWS ABOUT RISK INFLUENCE STATUS QUO ORIENTATIONS, POLITICAL PARTICIPATION, AND POLITICAL INVOLVEMENT. DATA FROM A STUDENT SAMPLE ARE USED TO TEST THESE EXPECTED RELATIONSHIP.

Land auction is widely practiced in company and government decisions, especially in China. Bidders are always faced with two or more auctions in the period of a decision cycle. The outcome of the auction is under high risk. The bidder's risk attitude and preference will have a great influence on his/her bidding price. Prospect theory is currently the main descriptive theory of decision under risk. In this paper, we will consider the preferences of the decision-makers in land bidding decisions with the multi-attribute additive utility and reference point method in cumulative prospect theory. Three land auction models are proposed based on the appearance time of the land auctions. The simultaneous model uses cumulative prospect theory without considering the relationships between the auctions. The time sequential model involves the exchange auction decisions at different time with the third-generation prospect theory. The event sequential model further considers the reference point prediction in sequential land auction decisions. The three models can help the decision-makers make better bidding price decision when they are faced with several land auctions in the period of a decision cycle. A case study illustrates the processes and results of our approaches.

The paper proposes a theory of efficient perceptual distortions, in which the statistical relation between subjective perceptions and the objective state minimizes the error of the state estimate, subject to a constraint on information processing capacity. The theory is shown to account for observed limits to the accuracy of visual perception, and then postulated to apply to perception of options in economic choice situations as well. When applied to choice between lotteries, it implies reference-dependent valuations, and predicts both risk-aversion with respect to gains and risk-seeking with respect to losses, as in the prospect theory of Kahneman and Tversky (1979).

To understand how people behave in an uncertain world - and to make viable recommendations about how the law should try to shape that behavior - legal scholars must employ a model or theory of decision making. Only with an understanding of how people are likely to respond to legal rules can legal scholars, judges, legislators, and regulators craft rules that are likely to encourage desirable behavior and discourage undesirable behavior. Rather than rely on rational choice theory, behavioral law and economics scholars (or legal decision theorists) have turned to Daniel Kahneman and Amos Tversky's "prospect theory" to inform their analyses of law and legal behavior. Prospect theory contains several empirical propositions relevant to legal analysis, but this paper focuses primarily on prospect theory's insight that people often make risk-averse choices when selecting between "gains" and risk-seeking choices when selecting between "losses." The paper surveys efforts in the legal literature to use this insight to inform the way legal scholars think about law and behavior in several doctrinal areas. The paper acknowledges some limitations associated with this work (e.g., external validity, differences in individual decision making, differences in group vs. individual decision making), but it concludes that prospect theory is nonetheless a valuable tool for legal scholars and policy makers.

"Prospect Theory, Loss Aversion, and Political Behavior" published on by Oxford University Press.