Buyer Behavior

Prospect Theory
Prospect Theory
(a) Use of Reference Point
(b) Reference Points Can Move
(c) Losses Loom Larger Than Gains
 Reference Point

• Which world would you live in?

– World 1: You make $50,000/yr, everyone else makes
$25,000/yr

– World 2: You make $100,000/yr, everyone else makes

$200,000/yr

• Prices are the same in both worlds

Losses loom larger than gains
 Lotto Winners vs. Paraplegics

Life Satisfaction
Million $
100 Lotto Winners

Paraplegics

0
Time
T=O T = 5 years
 Hindu Mythology

• Sinners
– First to Heaven, then to Hell

• Saints
– First to Hell, then to Heaven
 Acting In Anger

Take a deep breath, since negative emotions have stronger

impact than positive emotions…..