Prospect Theory - complement
J.Skorkovský
ESF-KPH

Prospect versus Utility Theory
•Marketers are implicitly interested  in how and why people make decision
•Having in mind the fact, that we are rational beings :
–we have to weigh up the odds
–apply laws of probability
–make decision
•That is a easy world and marketing would be a simple science
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• BUT
•We have to know how and why our behaviour deviates from rational decision models

Prospect versus Utility Theory
•Utility Theory :
–Two prospects with the same expected utility will be given the same preference by rational
decision makers
•Prospect Theory :
–Outcome of decision-making under condition of gains and loses is not symmetrical
–Decision appears to be irrational
–When we are in positive domain – risk averse
–When we are in negative domain – risk seekers

Prospect theory and marketing implication
•How and advertising message is framed
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•How a new product is positioned
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•How a new product is priced relative to the competitors and consumers expectations
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•How a product is priced and the premium  a consumer is willing to pay
•
•What markets will respond to what types of offer

Reference point  (area of acceptance)
Gains and losses are valued from
subjective reference point
Displeasure associated with loss is greater
than the pleasure  associated with the same
amount of gains
Pleasure = value ( in our case )
area of acceptance
Say story about
missing ticket 40 and buying
 another one and lost
 of two 20 USD bills…

Literatura
•Alex Cochran; October 2001 : Prospect Theory & Customer Choice
•   Internetový zdroj :
•   http://alexcochran.com.au/wp-content/uploads/2008/04/propect-theory-customer-choice.pdf
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