Prospect theory, proposed by Kahneman and Tversky in 1979, has been acknowledged as an excellent decision-making theory for the bounded rationality of investors tending to show cognitive bias under conditions of uncertainty. In terms of gains and losses in prospect theory, investors tend to be more sensitive to losses than equal-magnitude gains (loss aversion). Together, they show different risk attitudes: risk-averse in the case of gains and risk-seeking in the case of loss (diminishing sensitivity).
