Prospect Theory and Loss Aversion: A Cognitive Perspective on Economic Behavior

This paper explores how individuals perceive losses and gains through the lens of Prospect Theory, with a focus on loss aversion—the tendency to feel losses more intensely than equivalent gains. It bridges economics, cognitive science, and psychology to analyze how biases shape decisions in real-world domains like finance, policy, and consumer behavior. Drawing on empirical research and interdisciplinary insights, the paper highlights the psychological roots and practical implications of loss-averse behavior, and proposes future research directions to further understand the cognitive underpinnings of economic choice.