the actual question is wrong. to illustrate the framing effect, which underlies prospect theory, the question should be: 1. choose a) 90% for $1000 or b) 100%

the actual question is wrong. to illustrate the framing effect, which underlies prospect theory, the question should be: 1. choose a) 90% for $1000 or b) 100% for $900 a. you just got $1000. choose a) 10% chance to loose $1000 or b) 100% chance to loose $100. according to rational actor theory, people should choose the same thing both times. however, people often don't. its the framing effect. decisions are different when framed as losses or games. this builds the foundation for prospect theory. rational actor theory says that your preferences are consistent. prospect theory says that you have a reference point and your utility function is inconsistent and changes depending on your reference point.