And for large sums of money, you don't need prospect theory to explain loss aversion. Plain old marginal utility will do.
(I might have missed an explicit description of these "decision-making mechanisms" in the paper)
>we find that the ... most complex class ... lies outside the simple classes
Another curious statenent
It's unsurprising that the effects are seen most when the amounts are small. With large amounts, people think harder and are more likely to follow rational choice theory.
The TLDR of this paper:
You can generalize theories of decision-making into broad functional forms and then apply gradient descent to find the best parameters for that functional form. For example, prospect theory is multiply a utility weighting function U(x) with a probability weighting function p(x). Kahneman and Tversky proposed one specific set of U(x) and p(x), but we can use autodiff to generate all.
We can apply this method to any functional form.
Happy to answer any questions!
Edit: Seems like a “differentiable theory” is just one that can be framed in terms of an optimization problem that can be solved by gradient descent. Is that right?
