Prospect evaluation Consider the following two problems:

(a) In addition to whatever you own, you have been given $1000. You are now asked to choose between (A) a 50 percent chance of winning $1000 and (B) winning $500 for sure.

(b) In addition to whatever you own, you have been given $2000. You are now asked to choose between (C) a 50 percent chance of losing $1000 and (D) losing $500 for sure. In terms of final outcomes, (A) is obviously equivalent to (C) and (B) to (D). Yet 84 percent of participants chose B in the first problem, and 69 percent chose C in the second.

The difference between Example 7.7

(a) and

(b) is that in the former, outcomes are described in a gain frame, whereas in the latter, they are described in a loss frame. Consequently, in

(a) the gamble represents an opportunity to win the big prize, whereas in

(b) the gamble represents an opportunity to prevent a loss. To show how the observed response pattern might emerge we can analyze the problem algebraically.