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jimmy comments on Prospect Theory: A Framework for Understanding Cognitive Biases - Less Wrong

66 Post author: Yvain 10 July 2011 05:20AM

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Comment author: jimmy 11 July 2011 06:36:59PM 2 points [-]

One difference is that in standard utility theory, while utility doesn't have to be linear in money, if you 'zoom in' enough it is very close.

In prospect theory the shape doesn't change. It generally makes sense to be risk averse when you're risking amounts near your total wealth, but prospect theory says that you'll be risk averse at the $1 level too.