We like to believe we are reasonable.
That choices are weighed with logic,
that risks are taken with care,
that gains and losses balance neatly
on the scales of reason.
But in truth,
we do not choose with numbers alone.
We choose with stories.
With memory.
With emotion wrapped tightly around hope and fear.
Prospect Theory enters here—
not to correct us,
but to explain us.
To show how we think,
not in clean equations,
but in lived experience.
And how, in the shadow of uncertainty,
we do not see outcomes—
we feel them.
Gains and Losses Are Not Created Equal
According to prospect theory,
we do not weigh gains and losses the same.
A gain of $100 brings a smile.
A loss of $100 brings something heavier—
regret, anxiety, a quiet ache.
Losses loom larger.
They cut deeper.
We are wired to avoid pain
more urgently
than we are to seek pleasure.
So even if the math is balanced,
our choices lean
toward what protects us from the fall.
The Power of the Reference Point
We do not assess outcomes
on a fixed scale.
We measure them
relative to where we stand now.
A $100 gain feels different
to the wealthy than to the struggling.
A missed opportunity stings more
when it falls just short of what could have been.
Our reference point is our anchor.
It defines what counts as gain,
what counts as loss,
and shapes how we feel
before we even begin to choose.
In this way,
our expectations become the frame
through which we judge reality.
Risk-Seeking in Loss, Risk-Averse in Gain
We are not consistent.
And prospect theory does not ask us to be.
It observes:
- When we’re facing gains,
we tend to avoid risk.
We prefer a sure thing,
even if a gamble could give us more. - But when we’re facing losses,
we flip.
We become risk-seeking.
We’d rather gamble
than accept a guaranteed loss—
even if the odds are cruel.
This is not irrational.
It is emotional.
It is the mind’s way of fighting
the pain of loss,
even at greater cost.
Why This Matters
Prospect theory reveals
what decision theory alone cannot:
that people do not choose outcomes—
they choose feelings
about those outcomes.
They choose based on fear,
on hope,
on the stories they’re telling themselves
about what this moment means.
And if we want to understand
how we truly think,
we must begin
by listening to what we feel
when faced with gain,
and especially
when faced with loss.
A Closing Reflection
If you are facing a decision—
especially one under pressure—
pause.
Ask:
- Am I choosing from hope,
or from fear? - What loss am I trying to avoid,
and is the cost of avoidance even greater? - Am I chasing safety that may not be real,
or refusing a risk
that might lead to something more honest?
Because prospect theory does not judge you.
It simply reveals
that beneath the structure of logic,
there is a heartbeat.
And that heartbeat
often has the final word.
And in the end, prospect theory reminds us
that we are not flawed for feeling.
We are human for feeling.
And when we understand
how deeply loss moves us,
how quietly our reference points steer us,
we do not become cold calculators—
we become wiser souls.
Able to choose not just by what we fear,
but by what we are truly
ready to reach for.