Philosophy of Economics Assignment Essay Example | Topics and Well Written Essays - 750 words

Philosophy of Economics Assignment - Essay Example spect Theory is the value function which is "normally concave for gains, commonly convex for losses, and is generally steeper for losses than for gains (p. 263)† (Kahneman, 2002). According to Prospect theory, decision weights sometimes systematically differ from actual probabilities (Kahneman, 2002). For instance, there is always overweighing of very low probabilities thereby gambling on a rather unlikely event may become an attractive option. Prospect Theory uses empirical data to prove its argument (Kahneman, 2002). In trying to make the predictions, Kahneman and Tversky undertook a survey. They presented the data where a clear majority-taking consideration of two choices between two hypothetical prospects-preferred a predicted alternative even in times when strict economic rationality would clear favor the other (Kahneman, 2002). For instance, the two proponents of Prospects Theory asked their subjects to between these two economic choices. The neoclassical economics generally focuses on the choices that individuals make for purposes of consumption of goods and services (Kleinaltenkamp, & Ehret, 2006). Neoclassical focuses on the individual choices, preferences, and beliefs as well as the allocation that individual place on alternative choices (Kahneman, 2002). Through demand and supply, neoclassical economics have a standard approach to individual’s rationality in his or her ability to maximize utility or/and profit. The basis of neoclassical economics approaches are guided by three assumptions: As much as neoclassical and Prospects Theory are both economic theory and concepts, they have some different arguments (Kahneman, 2002). Neoclassical economics argues that preferences between two commodities do not depend on the consumer’s current entitlements. This behavioral concept forms the difference between these two theories (Kahneman, 2002). The neoclassic argue that Individuals maximize utility of the goods and services they consume while firms on the