Prospect Theory: Developments and Applications in Marketing

This paper reviews development of Prospect Theory on its four key issues: the editing process, the value function, the probability weighting function, and risk attitude assessment under Prospect Theory. Based on past findings, the author suggests some revisions to Prospect Theory, which allows the assimilation of small gains and losses in the value function and frames gains and losses as percentage gains and losses instead of absolute levels of gain and loss. Existent applications of Prospect Theory in marketing are discussed at the end of the paper. Several under-explored application areas in marketing are presented and possible applications suggested.