What is Prospect Theory?
Prospect theory is a description of how people actually choose between risky options, published by Daniel Kahneman and Amos Tversky in 1979. It says we judge outcomes as gains or losses from a reference point rather than as total wealth, and that the pain of a loss is steeper than the pleasure of an equal gain.
Why Prospect Theory matters
It explains why the price you paid, a number the market ignores, shapes so many selling decisions.