Daniel Kahneman introduced Cumulative prospect theory, his findings challenge what assumption?
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Cumulative prospect theory Cumulative prospect theory (CPT) is a model for descriptive decisions under risk and crisis which was introduced by Amos Tversky and Daniel Kahneman in 1992 (Tversky, Kahneman, 1992). It is a further development and variant of prospect theory. The difference between this version and the original version of prospect theory is that weighting is applied to the cumulative probability distribution function, as in rank-dependent expected utility theory but not applied to the probabilities of individual outcomes. In 2002, Daniel Kahneman received the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel for his contributions to behavioral economics, in particular the development of Cumulative Prospect Theory (CPT).
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Daniel Kahneman Daniel Kahneman ( ; Hebrew: דניאל כהנמן‎ ‎ , born March 5, 1934) is an Israeli-American psychologist notable for his work on the psychology of judgment and decision-making, as well as behavioral economics, for which he was awarded the 2002 Nobel Memorial Prize in Economic Sciences (shared with Vernon L. Smith). His empirical findings challenge the assumption of human rationality prevailing in modern economic theory.
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Contrastivism Contrastivism, or the contrast theory of meaning is an epistemological theory proposed by Jonathan Schaffer that suggests that knowledge attributions have a ternary structure of the form 'S knows that p rather than q'. This is in contrast to the traditional view whereby knowledge attributions have a binary structure of the form 'S knows that p'. Contrastivism was suggested as an alternative to contextualism. Both are semantic theories that try to explain skepticism using semantic methods.
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Homunculus argument The homunculus argument is a fallacy arising most commonly in the theory of vision. One may explain (human) vision by noting that light from the outside world forms an image on the retinas in the eyes and something (or someone) in the brain looks at these images as if they are images on a movie screen (this theory of vision is sometimes termed the theory of the Cartesian theater: it is most associated, nowadays, with the psychologist David Marr). The question arises as to the nature of this internal viewer. The assumption here is that there is a "little man" or "homunculus" inside the brain "looking at" the movie.
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Noisy market hypothesis In finance, the noisy market hypothesis contrasts the efficient-market hypothesis in that it claims that the prices of securities are not always the best estimate of the true underlying value of the firm. It argues that prices can be influenced by speculators and momentum traders, as well as by insiders and institutions that often buy and sell stocks for reasons unrelated to fundamental value, such as for diversification, liquidity and taxes. These temporary shocks referred to as "noise" can obscure the true value of securities and may result in mispricing of these securities, potentially for many years.
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Concept learning Concept learning, also known as category learning, concept attainment, and concept formation, is largely based on the works of the cognitive psychologist Jerome Bruner. Bruner, Goodnow, & Austin (1967) defined concept attainment (or concept learning) as "the search for and listing of attributes that can be used to distinguish exemplars from non exemplars of various categories". More simply put, concepts are the mental categories that help us classify objects, events, or ideas, building on the understanding that each object, event, or idea has a set of common relevant features. Thus, concept learning is a strategy which requires a learner to compare and contrast groups or categories that contain concept-relevant features with groups or categories that do not contain concept-relevant features.
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Vagrant predicate Vagrant predicates are logical constructions that exhibit an inherent limit to conceptual knowledge. Such predicates can be used in general descriptions but are self-contradictory when applied to particulars. For instance, there are numbers which have never been mentioned but no example can be given as this would contradict its definition. Vagrant predicates have been proposed and studied by Nicholas Rescher.
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Circular cumulative causation Circular cumulative causation is a theory developed by Swedish economist Gunnar Myrdal in the year 1956. It is a multi-causal approach where the core variables and their linkages are delineated. The idea behind it is that a change in one form of an institution will lead to successive changes in other institutions. These changes are circular in that they continue in a cycle, many times in a negative way, in which there is no end, and cumulative in that they persist in each round. The change does not occur all at once as that would lead to chaos, rather the changes occur gradually.
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Duhem–Quine thesis The Duhem–Quine thesis, also called the Duhem–Quine problem, after Pierre Duhem and Willard Van Orman Quine, is that it is impossible to test a scientific hypothesis in isolation, because an empirical test of the hypothesis requires one or more background assumptions (also called "auxiliary assumptions" or "auxiliary hypotheses"). In recent decades the set of associated assumptions supporting a thesis sometimes is called a "bundle of hypotheses".
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Bayesian statistics Bayesian statistics, named for Thomas Bayes (1701–1761), is a theory in the field of statistics in which the evidence about the true state of the world is expressed in terms of "degrees of belief" known as Bayesian probabilities. Such an interpretation is only one of a number of interpretations of probability and there are other statistical techniques that are not based on 'degrees of belief'. One of the key ideas of Bayesian statistics is that "probability is orderly opinion, and that inference from data is nothing other than the revision of such opinion in the light of relevant new information."
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Bateman Manuscript Project The Bateman Manuscript Project was a major effort at collation and encyclopedic compilation of the mathematical theory of special functions. It resulted in the eventual publication of five important reference volumes, under the editorship of Arthur Erdélyi.
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Prospection In psychology, prospection is the generation and evaluation of mental representations of possible futures. This ability fundamentally shapes human cognition, emotion, and motivation, and yet remains an understudied field of research, according to some psychologists. Instead of a person's past fully determining their actions, prospective psychology seeks to make prospection the center of research.
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Overconfidence effect The overconfidence effect is a well-established bias in which a person's subjective "confidence" in his or her judgements is reliably greater than the objective "accuracy" of those judgements, especially when confidence is relatively high. Overconfidence is one example of a miscalibration of subjective probabilities. Throughout the research literature, overconfidence has been defined in three distinct ways: (1) "overestimation" of one's actual performance; (2) "overplacement" of one's performance relative to others; and (3) "overprecision" in expressing unwarranted certainty in the accuracy of one's beliefs.
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Representativeness heuristic The representativeness heuristic is used when making judgments about the probability of an event under uncertainty. It is one of a group of heuristics (simple rules governing judgment or decision-making) proposed by psychologists Amos Tversky and Daniel Kahneman in the early 1970s.
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History of macroeconomic thought Macroeconomic theory has its origins in the study of business cycles and monetary theory. In general, early theorists believed monetary factors could not affect real factors such as real output. John Maynard Keynes attacked some of these "classical" theories and produced a general theory that described the whole economy in terms of aggregates rather than individual, microeconomic parts. Attempting to explain unemployment and recessions, he noticed the tendency for people and businesses to hoard cash and avoid investment during a recession. He argued that this invalidated the assumptions of classical economists who thought that markets always clear, leaving no surplus of goods and no willing labor left idle.
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Superforecasting Superforecasting: The Art and Science of Prediction is a book by Philip E. Tetlock and Dan Gardner released in 2015. It details findings from The Good Judgment Project.
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Naturalized epistemology Naturalized epistemology, coined by W. V. O. Quine, is a collection of philosophic views concerned with the theory of knowledge that emphasize the role of natural scientific methods. This shared emphasis on scientific methods of studying knowledge shifts focus to the empirical processes of knowledge acquisition and away from many traditional philosophical questions. There are noteworthy distinctions within naturalized epistemology. Replacement naturalism maintains that traditional epistemology should be abandoned and replaced with the methodologies of the natural sciences. The general thesis of cooperative naturalism is that traditional epistemology can benefit in its inquiry by using the knowledge we have gained from the cognitive sciences. Substantive naturalism focuses on an asserted equality of facts of knowledge and natural facts.
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Convergence clubs Convergence clubs, in global economic theory, pertain to levels of international attainment. Groups of countries are classified based on educational levels, income per capita and other measurable factors. For example, countries considered "poor" tend to converge towards one another and create a convergence club at a low level of per-capita wealth. Rich, developed nations such as the United States and those of Western Europe are grouped into a higher-income per-capita convergence level. Barriers such as educational limitations, lack of resources or poor infrastructure prevent poor countries from moving to a higher convergence club. These factors make it nearly impossible for a country in one convergence club to move to another convergence club.
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Applied economics Applied Economics is the application of economic theory and econometrics in specific settings. As one of the two sets of fields of economics (the other set being the "core"), it is typically characterized by the application of the "core", i.e. economic theory and econometrics, to address practical issues in a range of fields including demographic economics, labour economics, business economics, industrial organization, agricultural economics, development economics, education economics, health economics, monetary economics, public economics, and economic history. The process often involves a reduction in the level of abstraction of this core theory. There are a variety of approaches including not only empirical estimation using econometrics, input-output analysis or simulations but also case studies, historical analogy and so-called common sense or the "vernacular". This range of approaches is indicative of what Roger Backhouse and Jeff Biddle argue is the ambiguous nature of the concept of applied economics. It is a concept with multiple meanings. Among broad methodological distinctions, one source places it in neither positive nor normative economics but the "art of economics", glossed as "what most economists do".
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Stochastic portfolio theory Stochastic portfolio theory (SPT) is a mathematical theory for analyzing stock market structure and portfolio behavior introduced by E. Robert Fernholz in 2002. It is descriptive as opposed to normative, and is consistent with the observed behavior of actual markets. Normative assumptions, which serve as a basis for earlier theories like modern portfolio theory (MPT) and the capital asset pricing model (CAPM), are absent from SPT.
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Appeal to probability An appeal to probability (or appeal to possibility) is the logical fallacy of taking something for granted because it would probably be the case (or might possibly be the case). Inductive arguments lack deductive validity and must therefore be asserted or denied in the premises.
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Decline effect The decline effect may occur when scientific claims receive decreasing support over time. The term was first described by parapsychologist Joseph Banks Rhine in the 1930s to describe the disappearing of extrasensory perception (ESP) of psychic experiments conducted by Rhine over the course of study or time. In its more general term, Cronbach, in his review article of science "Beyond the two disciplines of scientific psychology" referred to the phenomenon as "generalizations decay." The term was once again used in a 2010 article by Jonah Lehrer published in "The New Yorker".