Daniel Kahneman - Thinking, Fast and Slow Concept Map

Prospect Theory is a behavioral economic theory developed by Daniel Kahneman and Amos Tversky in 1979. It describes how people make decisions between alternatives that involve risk and uncertainty, such as financial investments. The theory suggests that people value gains and losses differently, leading to decisions that deviate from those predicted by traditional economic theory.

Loss aversion is a concept from behavioral economics and psychology that describes people's tendency to prefer avoiding losses rather than acquiring equivalent gains. In other words, the pain of losing is psychologically about twice as powerful as the pleasure of gaining. This bias can significantly impact decision-making, often leading individuals to make irrational choices to avoid perceived losses.

Amos Tversky was a renowned cognitive and mathematical psychologist, best known for his pioneering work in the field of behavioral economics. He collaborated extensively with Daniel Kahneman and together they developed the prospect theory, which describes how people choose between probabilistic alternatives that involve risk.

The endowment effect is a psychological phenomenon where people ascribe more value to things merely because they own them. This bias leads individuals to demand a higher price to give up an object than they would be willing to pay to acquire it. The effect is often observed in various economic and consumer behavior contexts, where ownership increases the perceived value of an item.

In his book 'Thinking, Fast and Slow,' Daniel Kahneman introduces the concept of two systems of thinking: System 1 and System 2. System 1 operates automatically and quickly, responsible for intuitive and fast thinking. 'Substitution' likely refers to the process where System 1 substitutes a simpler question for a more complex one, sometimes leading to cognitive biases and errors in judgment.

The Cognitive Reflection Test (CRT) is a psychological assessment tool designed to measure an individual's ability to suppress an intuitive and spontaneous wrong answer in favor of a reflective and deliberative right answer. It helps in identifying how people process information and whether they rely more on intuition or analytical thinking.