WTF? It is like cornerstone of behavior finance and CFAI spends a significant amount of time on it
errata: Study Session 3, Reading 13: The text beginning with Section 3 (p. 92) through the end of the reading should be marked “optional.” These 42 pages are not assigned.
All you need to know is that individuals tend to avoid a certain loss and become risk seekers when confronted with the prospect of a substantial loss. This is contrast to conventional financial theory where individuals are always risk averse. End of prospect theory for L3!
yep, the pain of a 1 mio loss is higher than the benefit of a 1 mio profit… so you will take more risk attempting to eliminate that 1 mio loss but again, this is in the errata, keep that in mind