Prospect theory, developed by Daniel Kahneman and Amos Tversky, asserts that people's evaluations of experiences are influenced by a reference point or baseline. According to this theory, an outcome is perceived positively if it represents an improvement over past experiences, while it feels negative if it falls short of expectations based on prior experiences.

This perspective highlights how our judgments are not made in isolation but are relative to what we have previously encountered. The theory underscores the importance of context in shaping our feelings about different outcomes, as described in Barry Schwartz's book, "The Paradox of Choice: Why More Is Less."