Cmt learning objective 19 perception basis

1. Prospect theory describes two insights from framing effects: how people make risk-averse choices when outcomes are framed as gains but risk-seeking choices when outcomes are framed as losses. 2. The single greatest limitation of prospect theory is that it does not consider rational decision making and assumes people make decisions based entirely on cognitive biases. 3. Anchoring bias and the endowment effect can cause investors to rely too heavily on past prices or holdings and fail to objectively evaluate the true value of investments.