The last operation of Prospect Theory editing process:
Detection of Dominance: Outcomes that are strictly dominated are scanned and rejected without further evaluation.
Why outcomes that are strictly dominated have to be removed from further evaluation?
If investment A is _ never _ better than investment B, would you consider investment A?
^ perfect. Thanks, for the great explanation!
Dominance means the “worst”, not the “best”?
Dominance, noun
Dominated, adjective
Be careful with the reading.
From Schweser: "Detection of dominance would discard from consideration any proposal that is clearly dominated. The previous 50/50 chance of $500 or $700 dominates an equal chance of $400 or $600 in every regard: higher average, higher minimum, and higher maximum."
So, the dominated best outcome has been rejected, not the worst.
So you reject the latter.
You’re rejecting the 50/50 chance of $400/$600. That’s a worse outcome than a 50/50 chance of $500/$700, not a better outcome.
Thank you!
My pleasure.