Editing Prospect Theory (section)

== <span style="color: #FFFFFF;">Applying</span> ==
'''Modeling 'The Loss Aversion' (Predicting 'Bet Acceptance'):'''
<syntaxhighlight lang="python">
def evaluate_gamble(potential_win, potential_loss, win_prob):
    """
    Shows why 'Homo Economicus' would bet, but 'Humans' won't.
    """
    # Expected Value (Rational)
    ev = (potential_win * win_prob) - (potential_loss * (1 - win_prob))
    
    # Prospect Value (Human - Loss is weighted 2.2x)
    prospect_v = (potential_win * win_prob) - (potential_loss * 2.2 * (1 - win_prob))
    
    if prospect_v > 0:
        return f"RESULT: ACCEPT BET. (EV: {ev}, Prospect: {round(prospect_v, 2)})."
    else:
        return f"RESULT: REJECT BET. (Rational EV is {ev}, but it FEELS like {round(prospect_v, 2)})."

# Case: A 'Fair' bet ($110 win vs $100 loss)
print(evaluate_gamble(110, 100, 0.5))
# Case: A 'Great' bet ($250 win vs $100 loss)
print(evaluate_gamble(250, 100, 0.5))
</syntaxhighlight>

; Economic Landmarks
: '''The 'Mug' Experiment''' (Thaler) → Proving the **Endowment Effect**: students who were "Given a Mug" "Demanded" **$7** to sell it, while those who "Didn't have one" only "Offered" **$3** to buy it.
: '''The 'Asian Disease' Problem''' → Proving **Framing**: when a choice was "Framed as 'Saving 200 lives'," people chose the "Certainty." When "Framed as '400 people dying'," people "Gambled."
: '''Mental Accounting''' (Thaler) → The "Bias" where people "Treat Money Differently" depending on its "Category" (e.g. 'Bonus money' vs 'Salary').
: '''Hyperbolic Discounting''' → The "Bias" where we "Value" "Now" "Way More" than "Tomorrow," "Explaining" why we "Fail" to "Save for Retirement" or "Diet."
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