Humans, on the other hand, also weigh another aspect of the purchase: the perceived quality of the deal. That is what transaction utility captures. It is defined as the difference between the price actually paid for the object and the price one would normally expect to pay, the reference price

losses are roughly twice as painful as gains are pleasurable, a finding that has been replicated numerous times over the years.

To write these questions, I first had to decide which of two ways to ask the question: either in terms of “willingness to pay” or “willingness to accept.” The first asks how much you would pay to reduce your probability of dying next year by some amount, say by one chance in a thousand.

In order to get managers to be willing to take risks, it is necessary to create an environment in which those managers will be rewarded for decisions that were value-maximizing ex ante, that is, with information available at the time they were made, even if they turn out to lose money ex post.

“choice architecture” to describe what we were trying to do. In curious ways, simply having that phrase to organize our thoughts helped us create a checklist of principles for good choice architecture, with many of the ideas borrowed from the human design literature. Designing good public policies has a lot in common with designing any consumer pro

In many companies, creating a large gain will lead to modest rewards, while creating an equal-sized loss will get you fired.

Roughly speaking, losses hurt about twice as much as gains make you feel good.

good rule to remember is that people who are threatened with big losses and have a chance to break even will be unusually willing to take risks, even if they are normally quite risk averse.

Kahneman and Tversky focus on changes because changes are the way Humans experience life.