Last updated: April 2026 Price elasticity of demand (PED) measures how much the quantity demanded of a good changes — in percent — when its price changes by 1%. The formula is PED = (% change in quantity) ÷ (% change in price). A value below −1 means demand is elastic (smartphones, restaurant meals); between … Read more
Last updated: April 2026 Loss aversion is the behavioral tendency to feel the pain of a loss roughly twice as strongly as the pleasure of an equivalent gain. Daniel Kahneman and Amos Tversky quantified it in prospect theory (1979, 1992): the loss-aversion coefficient λ ≈ 2.25. It explains the disposition effect in trading, the endowment … Read more
Last updated: April 2026 The anchoring effect is a cognitive bias where the first number you encounter distorts every judgment that follows, even when that number is obviously random. Discovered by Tversky and Kahneman in 1974, it inflates salary offers, real-estate prices, legal sentences — and, as 2025 research confirms, the outputs of large language … Read more
Last updated: April 2026 Behavioral finance studies how psychological biases — loss aversion, overconfidence, herd instinct, mental accounting — systematically push investors toward irrational decisions. Founded on Daniel Kahneman and Amos Tversky’s prospect theory (1979) and expanded by Richard Thaler’s work on market anomalies, the field explains why even professionals sell winners too early, hold … Read more