dkishore1

This one puzzled me too . Naturally I chose prospect theory because of the skew between treating gains and losses.
I rationalized ( uselessly , because I have no real answer) that it is because :
1. It is not a knee jerk reaction to a loss ( prospect theory stresses on loss aversion ) but a planned strategy that yet brings in a behavioral bias into focus.
But cpk may  have hit on the right idea . Loss aversion is more pronounced in Prospect theory and you would delay selling to try and see if the stock recovers. You would also take gains early not to let the gains  disappear. This person is having a more disciplined approach, which is nevertheless skewed in its probabilities

dkishore1

how do you say the following, FinNinja?
Quote:
The way I have understood Prospect Theory is that it defines the process of making decisions and not the outcome
End Quote:
the process of making decisions and the outcome are kind of intertwined there.
The 6 steps of editing - Codification, Combination,Segregation, Cancellation, Simplification, and Detection of dominance - esp. the last three steps - would be based on the outcomes of the first three steps and would decide the final outcome, wouldn’t it?