Prospect Theory is a behavioral economic theory developed by Daniel Kahneman and Amos Tversky in 1979. It explains how people make decisions involving risk and uncertainty, highlighting that individuals value potential losses and gains differently. Specifically, losses are often perceived as more significant than equivalent gains, leading to risk-averse behavior when facing potential gains and risk-seeking behavior when facing potential losses. The theory introduces the concept of a "value function," which is concave for gains and convex for losses. This means that as people gain more, the additional satisfaction diminishes, while losses feel more painful, causing individuals to avoid risks that could lead to losses, even if the potential gains are substantial.