Developed by psychologists Daniel Kahneman and Amos Tversky in 1979, Prospect Theory posits that individuals evaluate potential losses and gains differently, leading to inconsistent decision-making compared to traditional economic theories. It introduces the concepts of loss aversion, where losses are felt more intensely than equivalent gains, and the framing effect, where decisions are influenced by how choices are presented. The theory is significant in explaining why individuals may act irrationally in economic and financial situations, often choosing certainty over a gamble with a higher expected value.