Final answer:
Behavioral economics, particularly the concept of loss aversion identified by Daniel Kahneman and Amos Tversky, challenges the notion that human behavior follows a purely rational economic model. It emphasizes that losses are felt more intensely than equivalent gains, influencing actions in ways that may seem irrational, such as in investment decisions.
Step-by-step explanation:
The theory that suggests all human behavior follows a basic economic model of rewards and losses is associated with behavioral economics. This field examines how psychological, social, cognitive, and emotional factors affect the economic decisions of individuals and the consequences of these decisions for market prices, returns, and resource allocation.
Behavioral economists like Daniel Kahneman and Amos Tversky have identified phenomena such as loss aversion, which posits that people experience the pain of a loss more intensely than the pleasure of an equivalent gain. In their 1979 Econometrica paper, they quantified this effect, stating that the pain of losing $1 is 2.25 times more powerful than the utility gained from receiving $1. In practice, this leads to behaviors that can be seen as irrational in traditional economic models, such as investors overreacting to losses in the stock market.