The
subjectively expected utility theory is theoretically dominant in the science of
decision-making for a long time. However, Kahneman
and Tversky (1979) which is really a
vastly influential paper in economics after over thirty years of publication[1] shows that this theoretical prevalence is not always consistently right, particularly
under the experimental settings and also introduces an elegantly alternative approach
of analysis for making decisions in uncertainty, that is called prospect theory. This essay aims to critically review prospect theory from
existing literature. Particularly, summaries of theory with comparisons with
the subjectively expected utility theory, the evolutionary process, key
contributions, highlighting applications, and challenges facing the theory in
moving further in literature of making decisions under risk and uncertainty are
presented.