Is Expected Utility Theory the Foundation of Decision-Making in Reality?——A Reflection from Prospect Theory

Modern mainstream economics takes expected utility theory as the foundation of decision-making under uncertainty.However,a lot of behavior or choice paradoxes put forward the challenge to expected utility theory.In fact,human behavior does not pursue the maximization of expected utility,but contains the evasion of risks;risk aversion is not common law, but loss aversion is more highlight;the same problem does not have the same decision,but influenced by the different framework;decision weight is different from probability,there is nonlinear relationship;psychological purchase price and sale price is different,there is obvious endowment effect;people's choice is always not consistent with his evaluation,preference reversal phenomenon will appear.Based on these paradoxes,Kahneman puts forward the prospect theory which is more close to reality than expected utility theory,as well as is more conducive to understand and interpret the real behaviors.