What is the primary emotional impact according to prospect theory?

Prospect theory, developed by Daniel Kahneman and Amos Tversky, suggests that individuals perceive gains and losses differently, leading to irrational decision-making under uncertainty. According to this theory, losses have a more significant emotional impact on individuals than equivalent gains. This phenomenon, known as loss aversion, indicates that the discomfort caused by a loss is typically about twice as potent as the pleasure derived from a gain of the same size.

For example, if someone experiences a loss of $100, the emotional impact of that loss would be felt more intensely than the joy of receiving an additional $100. This concept helps explain various behaviors in financial decision-making, such as why people may hold on to losing investments too long or why they might be overly cautious in making decisions that could result in losses rather than gains.

The other options do not align with the findings of prospect theory; for instance, the idea that gains have a greater impact overlooks the core principle of loss aversion, while equally weighted outcomes do not account for the asymmetric nature of emotional responses to gains and losses. Similarly, the notion that information is irrelevant to emotion contradicts the essence of how people process information regarding potential gains and losses, deeply influencing their emotional responses.