Cmt learning objective 20 inertia effect

Prospect theory describes two key insights from behavioral economics: 1) people evaluate gains and losses differently and are more sensitive to losses, and 2) choices are influenced by how options are framed. The greatest limitation is that it does not consider rational decision making. The document also describes various cognitive biases like anchoring, framing, sunk cost bias, and status quo bias that can influence perceptions and decisions.