COST ACCOUNTING
INFORMATION FOR DECISION MAKING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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between losses, they tend to make conservative decisions.
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between gains, they tend to make risky decisions.
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between losses, they tend to make risky decisions.
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between losses, they tend to make poor decisions.
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Detailed explanation-1: -Kahneman and Tversky published a series of seminal articles on judgment and decision-making that led to their prospect theory. That theory explained how we avoid risk when making decisions that offer a potential gain, and take risks when making decisions that could lead to a certain loss.
Detailed explanation-2: -Daniel Kahneman and Amos Tversky are often referred to as the fathers of behavioral economics, for demonstrating that the human brain relies on mental shortcuts and biases in decision-making, which often leads people to irrational ends.
Detailed explanation-3: -With Prospect Theory, the work for which Kahneman won the Nobel Prize, he proposed a change to the way we think about decisions when facing risk, especially financial. Alongside Tversky, they found that people aren’t first and foremost foresighted utility maximizers but react to changes in terms of gains and losses.
Detailed explanation-4: -According to Kahneman and Tversky, losses and gains are valued differently, and thus users make decisions based on perceived gains instead of perceived losses. For example, most people prefer winning $50 with certainty rather than taking a risky bet in which they can toss a coin and either win $100 or nothing.