Gains and losses in the eyes of the beholder: a comparative study of foreign policy decision making under risk

Gains and Losses in the Eyes of the Beholder: A Comparative Study of Foreign Policy Decision Making Under Risk. (December 2004) Yi Yang, B.A., Foreign Affairs College Chair of Advisory Committee: Dr. Alex Mintz Prospect theory is a descriptive model of individual decision-making under risk (Kahneman and Tversky 1979). The central tenet of prospect theory posits that the risk orientation of decision-makers is affected by the gains vs. losses domains in which they are situated. Individuals are predicted to be risk-averse in the domain of gains and risk seeking in the domain of losses. Although prospect theory made significant contributions to decision theory, it has important limitations. Foremost, as noted by Levy (1997a), prospect theory is not a complete theory of decision-making. Like rational choice theory, prospect theory attempts to explain choices or outcomes, not the processes through which those choices come about (Abelson and Levi 1985, 235). In response to this limitation of prospect theory, this dissertation intends to address the following set of puzzles: Do gains vs. losses domains affect the decision processes in foreign policy decision making? If so, in what way will decision strategies change? That is, what strategies are most likely to be employed when the decision maker is in the domain of gains? And, in contrast, what strategies are the most likely to be utilized when the decision maker is in the domain of losses?