Updated on March 25, 2023 We are not rational when we make choices under risk and uncertainty. This is because we prefer certainty. We do not want to live in uncertainty. Look at the following scenarios; The following examples appear in Daniel Kahneman and Amos Tversky’s 1979 paper on prospect theory. Their data were from the responses to hypothetical scenarios presented to Israeli university students. Scenario 1: Certainty effect with a monetary outcome gain Consider that you are given the following two options; Option A: A guaranteed win of 2500 in cash. Option B: 33% chance of winning 2500 in…