Abstract: The main body of current economic analysis of choice under uncertainty is built upon a small number of basic axioms, formulated in slightly different ways by von Neumann and Morgenstern (I 947), Savage (1 954) and others. These axioms are widely believed to represent the essence of rational behaviour under uncertainty. However, it is well known that many people behave in ways that systematically violate these axioms.' We shall initially focus upon a paper by Kahneman and Tversky (I 979) which presents extensive evidence of such behaviour. Kahneman and Tversky offer a theory, which they call 'prospect theory ', to explain their observations. We shall offer an alternative theory which is much simpler than prospect theory and which, we believe, has greater appeal to intuition. The following notation will be used throughout. The ith prospect is written as Xi. If it offers increments or decrements of wealth xl, ..., x. with probabilities Pi, .Pn (where p, + ... +pn = I) it may be denoted as (xi,pi; .. .; XwPn). Null consequences are omitted so that the prospect (x,p; o, I -p) is written simply as (x,p). Complex prospects, i.e. those which offer other prospects as consequences, may be denoted as (Xi,pi; ...; Xn,pn). We shall use the conventional notation >, > and to represent the relations of strict preference, weak preference and indifference. We shall take it that for all prospects Xi and Xk, Xi > Xk or Xi is transitive.