Prospect Theory: An Analysis of Decision under Risk.

Why this matters here

Kahneman and Tversky’s prospect theory shows that people evaluate outcomes relative to reference points and that losses often weigh more heavily than equivalent gains. The Economy We Don't Experience uses that finding for household inflation experience—leaders speak about rates of change while households remember position against a reset baseline of rent, care, and insurance. The paper establishes reference-dependent choice under risk; the book asks why national summaries and lived baskets diverge even when the arithmetic says income rose.