Prospect-Theory Behavior from Bellman Optimality in MDPs with Catastrophic States

ArXi:2606.00970v1 Announce Type: new We study risk-neutral control in Marko decision processes with an absorbing catastrophic state. Even though rewards are linear and the agent has no utility curvature, probability weighting, or framing dependence, standard Bellman optimality produces three prospect-theory-like signatures: an S-shaped value-function profile (convex near catastrophe, concave in the far field), an endogenous loss-sensitivity coefficient $\lambda^*(S) > 1$, and a reflection-effect policy reversal.