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Reflection of transitive and intransitive preferences: A test of Prospect Theory
Abstract
Prospect theory (PT) (D. Kahneman & A. Tversky, 1979, Econometrica, 47, 263–291) assumes that monetary outcomes are coded as gains and losses and that the value function for money is S shaped and steeper for losses. PT also predicts a reflection effect—preferences among strictly positive prospects are reversed when the gains are converted to equivalent losses. It was hypothesized that as a result of these effects subjects who are (in)transitive in the domain of gains would reflect their choices and behave (in)transitively in the domain of losses as well. The hypothesis was tested in a within-subject design using modified versions of the gambles from A. Tversky's (1969), (Psychological Review, 76, 31–48) study of intransitivity and Kahneman and Tversky's (1979) exposition of PT. The results provide strong empirical support for the reflection effect and shape of the value function hypothesized by PT and demonstrate an equal number of violations of transitivity for gains and losses. As predicted, most (in)transitive subjects in the domain of gains were also (in)transitive in the domain of losses. Furthermore, for most transitive subjects the preference ranking of the negative gambles was an exact mirror image of the comparable scale for positive prospects. However, the hypothesis that intransitive triples would also be reflected was not supported.
... Conversely, they are risk seeking in the context of gains and risk averse in the context of losses when probabilities are low (Kahneman & Tversky, 1979;Wiseman & Gomez-Mejia, 1998). Put differently, decision makers' risk preferences are situational across decision making contexts (Budescu & Weiss, 1987). In addition, valuation of alternatives are not absolute, but based on the difference between absolute value and the value of a point of reference; where the latter may be altered with new information. ...
... Subsequently, prospect theory has been the subject of numerous empirical tests and receives much support (e.g., Hsu, Wiklund, & Cotton, 2017;Kühberger, Schulte-Mecklenbeck, & Perner, 1999;Loehman, 1998;March & Shapira, 1992;Sullivan & Kida, 1995;Tanaka, Camerer, & Nguyen, 2016;Thaler & Johnson, 1990;Tversky & Kahneman, 1986;. While the results of prospect theory predictions have been widely accepted, participants in these studies have often been undergraduate students with limited or no business experience (Budescu & Weiss, 1987;Kameda & Davis, 1990;Paese, Bieser, & Tubbs, 1993;Sitkin & Weingart, 1995;Tindale, Sheffey, & Scott, 1993). This has cast doubt on whether cognitive biases that have been well demonstrated in classroom surveys equally affect all kinds of people or that they are particular to inexperienced student. ...
... The reason for the choice is again the certainty effect as well as the way people react to a loss relative to a gain. The certainty of losing $3,000 was over weighted relative to the option of losing $4,000 with 80% probability (Budescu & Weiss, 1987;Kahneman & Tversky, 1979). ...
... For example, in empirical research on economics and finance, many scenarios involve risky options with equiprobable outcomes (e.g., stock portfolios; see Levy, 2010), not risky versus riskless options. A categorical distinction between risky and riskless options can be found in several empirical studies: For instance, Schneider and Lopes (1986) found the reflection effect to be extremely irregular when individuals had to choose between pairs of multiple-outcome lotteries (see also Levy, 2010; but see Budescu & Weiss 1987). More recently, Mather et al. (2012) showed that younger and older adults manifested the reflection effect when comparing between lotteries (in line with Budescu and Weiss 1987), but noted that both age groups only differed in their risk attitudes when one of the options available was a certain outcome. ...
... A categorical distinction between risky and riskless options can be found in several empirical studies: For instance, Schneider and Lopes (1986) found the reflection effect to be extremely irregular when individuals had to choose between pairs of multiple-outcome lotteries (see also Levy, 2010; but see Budescu & Weiss 1987). More recently, Mather et al. (2012) showed that younger and older adults manifested the reflection effect when comparing between lotteries (in line with Budescu and Weiss 1987), but noted that both age groups only differed in their risk attitudes when one of the options available was a certain outcome. ...
... These features address some of the concerns with previous work involving complex lotteries (e.g., Schneider & Lopes 1986; see also Kühberger 1998). However, our findings are somewhat at odds with the results reported by Budescu and Weiss (1987), who found a systematic risk-attitude reversal when comparing choices between gain-only lotteries and choices between their lossonly counterparts. The discrepancy between their study and ours could be attributed to the fact that they considered lotteries with different probability levels, which requires some integration of the subjective representations of outcomes and probabilities (unlike our studies, which attempted to minimize the role of probabilities). ...
Empirical evaluations of risk attitudes often rely on a weak definition of risk that concerns preferences towards risky and riskless options (e.g., a lottery vs. a sure outcome). A large body of work has shown that individuals tend to be weak risk averse in choice contexts involving risky and riskless gains but weak risk seeking in contexts involving losses, a phenomenon known as the reflection effect. Recent attempts to evaluate age differences in risk attitudes have relied on this weak definition, testing whether the reflection effect increases or diminishes as we grow older. The present work argues that weak risk attitudes have limited generalizability and proposes the use of a strong definition of risk that is concerned with preferences towards options with the same expected value but different degrees of risk (i.e., outcome variance). A reanalysis of previously-published data and the results from a new study show that only a minority of individuals manifests the reflection effect under a strong definition of risk, and that, when facing certain lottery-pair types, older adults appear to be more risk seeking than younger adults.
... In this respect, the between-subjects design has the merit of being free of these effects. As one pair of authors remarked, however, with careful and clever designs, one can access the statistical and theoretical advantages of the within-subject setting while minimizing the demand effects (Budescu and Weiss, 1987). The authors Participants were asked to participate without any obligation. ...
... compared the results of the same experiment conducted under the two designs and found that demand effects were minimized when the authors dealt with range effects by varying the order of the MULTIMODAL PERCEPTUAL PROCESSINg OF CUES IN FOOD ADS: DO YOU SMELL wHAT YOU SEE? THEARF.ORg stimulus and the nature of the tasks, and that both within-subject and between-subjects designs led to similar results.The reliance on within-subject design in this research is motivated primarily by the three advantages mentioned above and by the difficulty in finding enough people willing to take part in the experiments. Knowing the limitations of this approach and in line with other authors' conclusions(Budescu and Weiss, 1987), the authors varied the questions and the tasks required of participants from one session to the other. Additionally, as recommended in previous sensory research on olfaction and taste perception(Fujimaru and Lim, 2013; Yeomans, Blundell, and Leshem, 2004), every two experiments were separated by a time span of four days to lower the effects of any memory trace left from the previous experiment on the behavior of participants in the current experiment and thus minimize the demand effects. ...
In food advertisements, consumers often get inputs from only a few senses and rely on
crossmodal interactions to represent those advertisement features which they are not
getting sensory stimulation from. In doing so, they create multimodal mental imageries
of the missing sensory cues. This article studies the perceptual process of multimodal
visually induced olfactory imagery in food advertising and measures its effects on taste
perception and food consumption. Olfactory-congruent visual inputs activate an associated olfactory imagery which in its turn creates an olfactory-congruent taste and influences food consumption.
... In this respect, the between-subjects design has the merit of being free of these effects. As one pair of authors remarked, however, with careful and clever designs, one can access the statistical and theoretical advantages of the within-subject setting while minimizing the demand effects (Budescu and Weiss, 1987). The authors Participants were asked to participate without any obligation. ...
... compared the results of the same experiment conducted under the two designs and found that demand effects were minimized when the authors dealt with range effects by varying the order of the MULTIMODAL PERCEPTUAL PROCESSINg OF CUES IN FOOD ADS: DO YOU SMELL wHAT YOU SEE? THEARF.ORg stimulus and the nature of the tasks, and that both within-subject and between-subjects designs led to similar results.The reliance on within-subject design in this research is motivated primarily by the three advantages mentioned above and by the difficulty in finding enough people willing to take part in the experiments. Knowing the limitations of this approach and in line with other authors' conclusions(Budescu and Weiss, 1987), the authors varied the questions and the tasks required of participants from one session to the other. Additionally, as recommended in previous sensory research on olfaction and taste perception(Fujimaru and Lim, 2013; Yeomans, Blundell, and Leshem, 2004), every two experiments were separated by a time span of four days to lower the effects of any memory trace left from the previous experiment on the behavior of participants in the current experiment and thus minimize the demand effects. ...
... Transitivity is part of simple-scalability models and other models of decision making such as configural weighting models (see Birnbaum et al., 1999); rank-and sign-dependent utility models (Luce & Fishburn, 1991, 1995Quiggin, 1982;Tversky & Kahneman, 1992;Wakker, 1989); prospect theory (Kahneman & Tversky, 1979); elimination by aspects (EBA), which satisfies moderate and weak stochastic transitivity (Tversky, 1972); and decision field theory, which satisfies weak stochastic transitivity (Busemeyer & Townsend, 1993). Several experiments have demonstrated violations of this principle (Birnbaum et al., 1999;Budescu & Weiss, 1987;Coombs, 1958;Lindman & Lyons, 1978;Mellers & Biagini, 1994;Mellers, Chang, Birnbaum, & Ordóñez, 1992;Montgomery, 1977;Rumelhart & Greeno, 1971;Tversky, 1969;1 Tversky & Russo, 1969). ...
... Violations of this property appeared in studies by Tversky (1969), Montgomery (1977), Lindman and Lyons (1978), Budescu and Weiss (1987), and more recently in Birnbaum et al. (1999). The work by Iverson and Falmagne (1985) has questioned, however, whether the evidence presented by Tversky is sufficient to conclude that violations occurred. ...
The stochastic difference model assumes that decision makers trade normalized attribute value differences when making choices. The model is stochastic, with choice probabilities depending on the normalized difference variable, d, and a decision threshold, δ. The decision threshold indexes a person's sensitivity to attribute value differences and is a free estimated parameter of the model. Depending on the choice context, a person may be more or less sensitive to attribute value differences, and hence δ may be used to measure context effects. With proportional difference used as the normalization, the proportional difference model (PD) was tested with 9 data sets, including published data (e.g., J. L. Myers, M. M. Suydam, & B. Gambino, 1965; A. Tversky, 1969). The model accounted for individual and group data well and described violations of stochastic dominance, independence, and weak and strong stochastic transitivity.
... En la vida real, cada persona ha de prendre decisions contínuament, tant en situacions de guany com de pèrdua, és a dir, és la mateixa persona la que es veu obligada a confrontar-se amb aquestes diferents situacions al llarg de la seua vida. Encara que aquest estudi d 'Hershey i Schoemaker (1980) no va estar exempt de dures crítiques (Keren i Raaijmakers, 1988), fonamentalment per la manera com van dur a terme la seua recerca, Budescu i Weiss (1987), mitjançant un disseny intra-subjecte, van poder constatar de nou els resultats originals obtinguts per Kahneman i Tversky (1979) i solucionar en el seu treball les crítiques metodològiques suscitades en els estudis anteriors. ...
... Ens servirem dels problemes 1, 5, 6, 8, 12 i 13 -vegeu Annex-per posar a prova la hipòtesi d'aquest estudi. La resta de problemes funcionaven com a distractors en aquesta recerca per a garantir-ne una major validesa interna (Budescu i Weiss, 1987). L'elecció de l'ordre dels problemes es va realitzar aleatòriament. ...
En el present estudi hem reprès la recerca duta a terme per Kahneman i Tversky (1979), que va donar origen a la seua Teoria Prospectiva. La importància d’aquesta teoria radica, d’una banda, en la crítica que va suposar a la teoria de la utilitat esperada i, d’altra banda, al fet que va permetre la formulació de l’efecte de certitud –o certesa–, de reflexió i de l’efecte marc. Aquests autors van utilitzar en els seus estudis generalment dissenys experimentals entrasubjecte. El nostre objectiu ha consistit a comprovar si els efectes trobats per aquests autors es mantenen, igualment, malgrat el fet d’haver dut a terme una anàlisi intrasubjecte establint com a hipòtesi que els seus plantejaments no siguen rebutjats. Per açò, prenem una mostra de 106 participants, als quals se’ls va fer una sèrie de preguntes basades en problemes de pèrdues i guanys. Després de replicar l’estudi en cinc ocasions, els resultats finals van mostrar que, tal com havíem esperat, continuen produint-se els mateixos efectes que Kahneman ha identificat al llarg del temps, malgrat que es tractara d’un disseny intrasubjecte.
In the present study, we have revisited the research carried out by Kahneman and Tversky (1979), which was the origin of their Prospect Theory. The importance of this theory comes from, on the one hand, the criticism about the expected utility theory and, on the other hand, the fact that it allowed the formulation of the certainty effect, the reflection effect and the frame effect. These authors generally used in their studies between-subject experimental designs. Our hypothesis was to test whether these effects remain the same even though we have conducted a within-subject analysis. For this purpose, we took a sample of 106 participants, to whom we asked a series of questions based on profits and losses problems. After repeating this study 5 times, the results showed that, as we had expected, the certainty effect, the reflection effect and the frame effect that Kahneman has identified were all still present, despite having used a within-subject design.
En el presente estudio hemos retomado la investigación llevada a cabo por Kahneman y Tversky (1979) que dio origen a su Teoría Prospectiva. La importancia de esta teoría radica, por un lado, en la crítica que supuso a la teoría de la utilidad esperada y, por otro lado, a que permitió la formulación del efecto de certidumbre (o certeza), de reflexión y del efecto marco. Estos autores utilizaron en sus estudios generalmente diseños experimentales entre-sujeto. Nuestro objetivo ha consistido en comprobar si los efectos encontrados por estos autores se mantienen igualmente a pesar de llevar a cabo un análisis intra-sujeto, estableciendo como hipótesis que sus planteamientos no serían rechazados. Para ello, tomamos una muestra de 106 participantes, a los que se les hizo una serie de preguntas basadas en problemas de pérdidas y ganancias. Tras replicar el estudio en cinco ocasiones, los resultados finales mostraron que, tal y como habíamos esperado, se siguen produciendo los mismos efectos que Kahneman ha venido identificando a lo largo del tiempo, a pesar de tratarse de un diseño intra-sujeto.
... The issue of transitivity is important because descriptive theories disagree about whether transitivity of preference can be systematically violated. Some important papers reviewing transitivity in terms of empirical results, theory, or error analysis include Bhatia and Loomes (2017), Birnbaum (2023a), Budescu and Weiss (1987), Cavagnaro and Davis-Stober (2014), Fishburn (1991), Gonzalez-Vallejo (2002), Iverson and Falmagne (1985), Leland (1998), Loomes and Sugden (1982), Luce (2000), Morrison (1963) Rieskamp et al. (2006), Sopher and Gigliotti (1993), and Tversky (1969). ...
This article describes a study of transitivity of preference and of transparent dominance with 220 participants who judged each choice problem 4 times. It shows how a true-and-error model with 2 error terms per choice problem can be applied to replicated data, to ask if violations of dominance or of transitivity are ‘real’ rather than due to random response errors. These models allow one to estimate the incidence of systematic violations and of error rates. The new data showed about 3% violations of transitivity, corrected for error. This incidence might be statistically significant, but a skeptic might dismiss it as too small to build a theory upon. Tests of dominance found violations with overall rates from 4% to 18%. As in previous research, violations of transparent dominance appeared almost exclusively among people who systematically prefer ‘safe’ gambles (with low ranges of outcomes) over ‘riskier’ gambles with higher expected values when the ‘safe’ gamble was dominated by the higher-ranged gamble. For those participants and choice problems, rates of violation were 28%–45%, corrected for error. It was theorized that these violations of dominance may be due to a subgroup of risk-averse participants using a strategy in this experiment to find ‘safe’ alternatives, without comparing outcomes between gambles.
... Unlike violations of SST, violations of WST are rare. Moreover, they are only obtained under highly special conditions involving just noticeable differences in dimension values (Budescu & Weiss, 1987;Lindman & Lyons, 1978;Montgomery, 1977;Ranyard, 1977;Tversky, 1969;Zakay & Beer, 1992). For this reason, these violations are not treated as seriously as the more pervasive violations of SST. ...
Decision field theory provides for a mathematical foundation leading to a dynamic, stochastic theory of decision behavior in an uncertain environment. This theory is used to explain (a) violations of stochastic dominance, (b) violations of strong stochastic transitivity, (c) violations of independence between alternatives, (d) serial position effects on preference, (e) speed–accuracy tradeoff effects in decision making, (f) the inverse relation between choice probability and decision time, (g) changes in the direction of preference under time pressure, (h) slower decision times for avoidance as compared with approach conflicts, and (i) preference reversals between choice and selling price measures of preference. The proposed theory is compared with 4 other theories of decision making under uncertainty.
... According to prospect theory, people distinguish the results by gain or loss based on a reference point. People are more sensitive to losses [27] and are more willing to risk in decisions involving losses [28]. Because of loss aversion, people prefer to keep their status rather than change it [15]. ...
Trust and reciprocity promote cooperation and are key elements of a successful social life. This study investigated the framing effects on trust and reciprocity behaviors. Using an iterated one-shot within-subjects design, this study explored how trust and reciprocity decisions changed when the game was framed in terms of a give (i.e., using a standard trust game with a default of no trust) and a take (e.g., using a distrust game with a default of full trust) frame. Participants of both genders first completed the scenario version of the game (Session 1), and then played the roles of trustors (Session 2) and trustees (Session 3) with human and computer-mediated human partners either in the give or take frame. Our results showed increased trust in the give than in the take frame, but only pronounced in direct interaction with human (vs. indirect computer-mediated) partners. Participants also showed higher expectations of return in the give than in the take frame. The actual reciprocity was higher in the give than in the take frame when interacting both with human and computer-mediated human partners. The results contribute to our understanding of the factors that shape trust and reciprocity and emphasize the impact of framing the default.
... Almost all participants displayed at least one weak stochastic transitivity violation. These descriptive findings were subsequently replicated (Montgomery, 1977;Lindman and Lyons, 1978;Budescu and Weiss, 1987), but the later literature cast doubts on the strength of the evidence. Iverson and Falmagne (1985) reanalyzed the data of Tversky (1969) and argued that the evidence was compatible with transitive preferences and noisy choices. ...
Transitivity is perhaps the most fundamental choice axiom and, therefore, almost all economic models assume that preferences are transitive. The empirical literature has regularly documented violations of transitivity, but these violations pose little problem as long as they are simply a result of somewhat-noisy decision making and not a reflection of the deterministic part of individuals’ preferences. However, what if transitivity violations reflect individuals’ nontransitive preferences? And how can we separate nontransitive preferences from noise-generated transitivity violations–a problem that so far appears unresolved? Here we tackle these fundamental questions on the basis of a newly developed, non-parametric method which uses response times and choice frequencies to distinguish revealed preferences from noise. We extend the method to allow for nontransitive choices, enabling us to identify the share of weak stochastic transitivity violations that is due to nontransitive preferences. By applying the method to two different datasets, we document that a sizeable proportion of transitivity violations reflect nontransitive preferences. These violations cannot be accounted for by any noise or utility specification within the universe of random utility models. Finally, in spite of revealed transitivity violations, preferences estimated through our method predict choices out of sample better than standard parametric random-utility estimations.
... In a separate literature, a wide range of experiments have shown that humans tend to violate the axioms of utility theory (Tversky 1969;Kahneman and Tversky 1979;Budescu and Weiss 1987). Changes in problem wording (framing) affect decisionmaking consistency. ...
This study tested hypotheses that link cognitive decision-making coherence and health behavioral patterns to the endorsement of compensatory health beliefs (CHBs). Structural equation modeling was used to investigate relationships among the latent variables Compensatory Health Beliefs and 2 other constructs: Decision-Making Coherence (measured by resistance to framing, under/overconfidence, applying decision rules, consistency in risk perception, and resistance to sunk cost bias), and Risk Tendencies with Health Consequences (measured by self-control, the Health Behavior Checklist, and risk perception scales). An online, adult, United States sample—recruited through Amazon.com®’s Mechanical Turk (MTurk)—was assessed. The model described key relationships for the MTurk sample. Low levels of Decision-Making Coherence and Risk Tendencies with Health Consequences were associated with increased endorsement of Compensatory Health Beliefs. Results can help clarify the relationship between health-related cognitions and actions, and impact the design of interventions that rely on the use of the CHB scale.
... Within the subject, experiments are often prone to a disadvantage where the salience of earlier choices may lead to biased responses. To minimize this effect, the order of treatments was randomized (Kahneman and Tversky, 1979;Budescu and Weiss, 1987). For Scenario 1, the subjects were asked to think of their favourite smartphone brand. ...
... Within the subject, experiments are often prone to a disadvantage where the salience of earlier choices may lead to biased responses. To minimize this effect, the order of treatments was randomized (Kahneman and Tversky, 1979;Budescu and Weiss, 1987). For Scenario 1, the subjects were asked to think of their favourite smartphone brand. ...
Purpose
This paper aims to understand how strong brand attachment can intensify the feeling of perceived betrayal, leading to brand hate after a negative experience with the brand. The study further investigates how consumers make causal attributions for negative experiences when strong brand attachment exists. The moderating effect of a narcissistic personality in the dissemination of negative electronic word of mouth (eWOM) following brand hate is also tested.
Design/methodology/approach
The study uses a within-the-subject repeated measures experimental design. A total of 202 college students were exposed to two treatments (high versus no brand attachment), involving a situation of product failure of a smart phone brand. A total of 135 responses were used to compare the outcomes of the two treatments using multivariate analysis. The data of high brand attachment treatment ( N = 202) were used to test the proposed research model using partial least square-structural equation modelling.
Findings
The results suggest that having a strong positive relationship with the brand can generate stronger feelings of perceived betrayal and brand hate after the brand transgresses the consumer’s expectations. The results indicate that resentful customers can resort to eWOM after feeling betrayed, even though the prior relationship with the brand was strong.
Originality/value
This paper extends the work on perceived betrayal to study brand hate and proposes that brand hate can arise even if there is a strong brand attachment. It contributes to the growing body of literature on brand hate and its possible antecedents. Additionally, the study poses some crucial managerial implications for the brand managers by suggesting that strong brand relationships not always ensure loyalty or commitment and can lead to consequences that are damaging for the brand equity.
... Der Name leitet sich ab von "expected utility", d. (Kahneman & Tversky, 1979) und deren Weiterentwicklung von 1992, die "cumulative prospect theory" (Tversky & Kahneman, 1992 Die prospect theory und die cumulative prospect theory haben sich als sehr fruchtbar für die Forschung erwiesen und viele Studien auf den Plan gerufen -aber auch nicht wenig Kritik. So konnte beispielsweise die Annahme einer S-förmigen Nutzenkurve und das damit verbundene Auftreten von Präferenzumkehrungen ("reflection effect") der empirischen Überprüfung nicht genügend standhalten (Budescu & Weiss, 1987;Cohen, Jaffray, & Said, 1987;Fagley & Miller, 1987;Fischhoff, 1983;Hershey & Schoemaker, 1980;Luce, Mellers, & Chang, 1993;Maule, 1989;Miller & Fagley, 1991;Rode & Wang, 2000;Schneider, 1992;Schneider & Lopes, 1986;Wang, Simons, & Bredart, 2001;Weber & Bottom, 1989). Eine weitere Kritik an der prospect theory stammt von Tversky und Kahneman (1984) selber: Die Theorie sei statisch und könne nur Gruppenmittelwerte erklären und vorhersagen. ...
Die vorliegende Arbeit untersuchte riskante Entscheidungen und die ihnen zugrundeliegenden Informationsintegrationsprozesse bei Jugendlichen und Erwachsenen sowie den Einfluss verschiedener Verarbeitungsmodi ('heiss' emotional- motivational versus 'kalt' kognitiv-rational) auf diese Entscheidungen. In 4 Experimenten füllten 342 Jugendliche und Erwachsene (12 bis 57 Jahre) einen Motivfragebogen aus und spielten ein Computerkartenspiel, bei dem sie riskante Entscheidungen treffen und Informationen zu möglichen Gewinnen, Verlusten und deren Eintretenswahrscheinlichkeiten berücksichtigen mussten. Die Integrationsmuster auf der Gruppenebene folgten weitestgehend additiven Modellen, auf der Individualebene ergaben sich dagegen grosse individuelle Unterschiede in den verfolgten Strategien. Als weiteres Ergebnis zeigte sich die Bedeutung der Unterscheidung heisser und kalter Entscheidungsprozesse beim riskanten Entscheiden sehr deutlich: Nur in den heissen, nicht aber den kalten Bedingungen konnte bei den jüngeren Altersgruppen - insbesondere den männlichen Teilnehmern - eine erhöhte Risikobereitschaft beobachtet werden; diese ging ausserdem mit einer geringeren Komplexität in der Informationsintegration einher. Die Korrelationsmuster zwischen dem Kartenspielverhalten und dem Motivfragebogen belegten weiter die bedeutsame Rolle, die insbesondere heisse Formen der Informationsverarbeitung bei der Entstehung riskanten Verhaltens bei Jugendlichen und jungen Erwachsenen spielen. The thesis investigates risky decision making and risk taking as well as the underlying information integration processes from youth to adulthood. Further, it explores the influence of 'hot' emotional-motivational versus 'cold' cognitive-rational decision modes on risky decision making. In 4 experiments, 342 participants (12 to 57 years of age) completed a motivational questionnaire and played a computer card game in which they made risky decisions based on varying information regarding potential wins and losses and the probabilities of winning or losing. On the group level, information integration mainly followed additive patterns while, on the individual level, large individual differences in the strategies were found. The results highlighted the importance of differentiating hot and cold information processing in risky decision making: marked age and gender differences were found only in the hot but not in the cold conditions - with the younger males being most risk seeking and showing less complex patterns of information integration in the hot conditions. The observed correlations between strategies in the card game and measures of the motivational questionnaire further underscore the importance of considering hot modes of information processing to explain risk taking in adolescents and young adults.
... Alle Designlösungen wurden in einer within-subject-Design Evaluation (Budescu und Weiss 1987) überprüft, in dem sie mit einer papierbasierten konventionellen Beratung verglichen wurden. Die Konzeptualisierung, Entwicklung und Evaluation der Designlösungen erfolgte im Rahmen eines Forschungsprojektes in Zusammenarbeit mit zwei Schweizer Partnerbanken: einer grossen Schweizer Bankengruppe und einer Schweizer Retailbank. ...
Businesses need information about their clients. Once client data is available, it becomes possible to create a client profile which could be used for personalized marketing, for example. Banks often apply valuable client data in financial advisory services during the needs elicitation phase. This involves gathering information about the client’s personal situation (financial status, family relationships, career situation, and so on) as well as their needs (planning for the future, their risk tolerance, and so on). On the basis of this information, a high-quality client profile can be created. Nonetheless, financial advisors often do not put enough effort into gathering information as parts of the needs elicitation process, resulting in a client profile of lower quality. Accordingly, clients are dissatisfied with inadequately tailored solutions and recommendations. Nevertheless, banks are subject to regulatory requirements to gather certain information. Moreover, in the digital era, banks are faced with the challenge of how to fulfill changing client requirements and integrating in-branch advice in a digital, omnichannel concept. The literature contains multiple instances demonstrating that IT can be used purposefully in advisory services. Nevertheless, no studies have yet been undertaken that research how the quality of client profiles could be improved by supporting the needs elicitation process. In this work, we answer the research question: “How can information technology be used to improve profile quality in financial advisory services?” In our analysis of the problem in the field, we have further established that although all stakeholders (banks, regulators, advisors, and clients) place great stead in the needs elicitation process, relevant client information is not gathered, causing profile quality to suffer in consequence. We further demonstrate that the problem cannot be resolved using currently advicegiving approaches in a service encounter. For example, questionnaires can disrupt the flow of conversation while using blank sheets of notepaper entail the risk that information may be overlooked. In this work, we introduce three design concepts to improve the needs elicitation process with the use of an information system: “joint profiling”, “task aware joint profiling” and “semi-private profiling”. All design concepts are based on the general design idea of guiding the advisor and the client by providing prompts when creating the client profile. Our problem analysis demonstrated that advisors and clients, emphasize the value of natural, open discussion. It has been shown in the literature that participants dislike an explicit process visualization of the advisory process. As such, we seek to guide the participants in the conversation without necessarily compelling them to follow a particular course of action. The nudge theory describes how people can be guided without restricting their freedom to take decisions. Building on findings contained in the literature and on nudge theory, we introduce the first concept of “joint profiling” and its implementation in CoProfiler 1.0. Nevertheless, many advisors and clients reported a sense of being compelled to discuss everything. Analysis of data showed that clients wondered, why the bank needs all this information. Their awareness of the task at hand suffered. The second concept, “task aware joint profiling” was developed with a focus on ensuring task awareness, and implemented in CoProfiler 2.0. This resulted in significantly higher task awareness in comparison to the pen-and-paper advisory sessions. Nevertheless, we observed that the use of a shared IT-artifact disrupted the conversation. Conversational analysis further confirmed that needs elicitation can be broken down into two distinct phases with differing goals and conversational roles. In the third design concept, “semi-private profiling,” the objective was to support these two phases of needs elicitation specifically. Accordingly, during the first phase of needs elicitation, only the advisor was supported by a semi-private IT-artifact. Evaluation of the PrivateProfiler prototype revealed that all design goals had been achieved. In this work, we contribute to the body of research in financial advisory services, IT-supported advisory services, and research about digital nudging.
... Confounding variables can then interfere with the effect of the treatment and bias the results of the experiment. We follow Budescu and Weiss (1987) to control for order effects. They suggest counterbalancing the treatments among the sessions. ...
In this paper, we use a laboratory experiment to analyze the relationship between equity and coordination success in a game with Pareto ranked equilibria. Equity is decreased by increasing the coordination payoffs of some subjects while the coordination payoffs of others remain unchanged. Theoretically, in this setting, difference aversion may lead to a positive relationship between equity and coordination success, while social welfare motivations may lead to a negative relationship. Using a within-subject experimental design, we find that less equity unambiguously leads to a higher level of coordination success. Moreover, this result holds even for subjects whose payoffs remain unchanged. Our results suggest that social welfare motivations drives the negative relationship between equity and coordination success found in this experiment. Moreover, our data suggest that the order of treatment matters. Groups facing first the treatment with high inequality in coordination payoffs, then the treatment with low inequality in coordination payoffs, reach the Pareto dominant equilibrium more often in both treatments compared to groups playing first the treatment with low inequality in coordination payoffs, then the treatment with high inequality in coordination payoffs.
... Some other researchers in this area Tversky and Kahneman (1992) who offered the theory of expectation which helped a lot in developing this science, also Schneider (1992) and Budescu and Weiss (1987) were among the researchers who published articles on financial behavior that played an important role in financial management and have a significant part in guiding investors for tacking financial decisions (Filbeck et al., 2005). Further Thaler (1999) study on literature and concluded that the mental accounting influences the choices. ...
Investor’s irrationality is an inevitable reality that has been time and again highlighted by researchers (Statman, 2008). Therefore, this study is another effort to assess the role of behavioral biases in financial decision making in Pakistan Stock Exchange (PSX). A survey questionnaire is designed and used to collect responses using convenience sampling technique from sample of 250 investors of PSX. Behavioral biases include overconfidence, over thinking, herding, cognitive bias, and hindsight effect of investors. Multiple regression models are used to test influence of five behavioral biases on investment decision. The results show that overconfidence, over thinking, herding, cognitive bias, and hindsight effect have significant positive impact on investment decision. Overall results conclude that much change in investment decision is due to behavioral biases. This study will help financial advisors to better advice their clients. The one way to reduce these biases may be education and training of investors.
... According to prospect theory, a descriptive model of individual decision-making, people differentiate between outcomes described in terms of gains versus losses (Camerer, 2004;Kahneman & Tversky, 1979). Specifically, people are more sensitive to losses compared to gains (Novemsky & Kahneman, 2005;Sokol-Hessner et al., 2009); and are more risk-seeking for decisions involving losses (Budescu & Weiss, 1987;Kühberger, Schulte-Mecklenbeck, & Perner, 1999;Tan et al., 2017). ...
How do trust and reciprocity decisions change when outcomes are framed in terms of potential losses (vs gains)? In two studies, with 7464 trust decisions from 359 participants and 2723 reciprocity decisions from 221 participants, we find that loss framing increases mean-level trust, but has no effect on mean-level reciprocity. Additionally, loss framing changes how decisions are made: In the domain of losses, trustors and trustees become less calculative — trust decisions involving losses are less sensitive to changes in expected value and reciprocity decisions are less sensitive to the financial temptation to betray trust. Critically, these changes in the process of decision-making are more pronounced when people interact with a human (vs computer) partner, pointing to uniquely social consequences of loss framing. The present results contribute to our understanding of the factors that shape trust and reciprocity, and emphasize that interpersonal processes play an important but under examined role in gain-loss framing effects.
... Interestingly, this tendency for loss-aversion, or the idea that losses loom larger than equivalent gains, has been clearly noted and described in Kahneman's and Tversky's "Prospect Theory" (Kahneman & Tversky, 1979). Results of human decision-making research are generally consistent with the notion of loss-aversion (Budescu & Weiss, 1987;Kahneman, Knetsch, & Thaler 1990;Schneider & Lopes, 1986;Tversky & Kahneman, 1991;Camerer, 2000;Bleichdrodt, Pinto & Wakker, 2001). More recently, Gill and Prowse (2012) have provided experimental evidence that loss-aversion could become more salient within a competitive environment. ...
The present study introduces a revised adaptation of the "ethnic security dilemma" theory to explain the nature of antagonisms between the Greek and Turkish Cypriots in negotiations for resolving the Cyprus Question. The proposed theory accounts for security positions adopted by parties under conditions of fear and uncertainty. The indistinguishability of offensive-defensive positions and the perceived windows of opportunity have turned the negotiating process into a competitive cost-benefit problem marked by their distinct security considerations. Furthermore, the study develops a loss-framed negotiations model to illustrate likely choices when perceived costs outweigh the importance of prospective gains. The analysis concludes that although parties could be better off by cooperating, suspicion and distrust encourages defection by creating fears of prospective losses with regards to security.
... For instance, studies they cite which support sign dependence include Edwards (1953;, Hogarth and Einhorn (1990), Tversky and Kahneman (1992), Abdellaoui (2000), Bleichrodt (2001), Etchart-Vincent (2004), Payne (2005), Abdellaoui et al. ( , 2010. Diminishing sensitivity is reported in Kahneman and Tversky (1979), Tversky and Kahneman (1991;, Hershey and Schoemaker (1982), Budescu and Weiss (1987), Camerer (1989), Fennema and van Assen (1998), Luce and Marley (2000), Abdellaoui (2000) and 2007;. Empirical support for loss aversion is found in Battalio et al. (1990), Tversky and Kahneman (1992), Camerer (1998), Kahneman and Tversky (2000), Schmidt and Traub (2002), Camerer et al. (2004), Brooks and Zank (2005); and Abdellaoui et al. (2007Abdellaoui et al. ( , 2008. ...
Financial decision-making is not straightforward, in part, because such decisions generally involve comparing financial assets the payoffs from which are subject to risk and uncertainty.
Given that situation, two questions naturally arise: How do economic agents go about the business of making choices in the face of risk and uncertainty? And, how should economic agents make choices in the face of risk and uncertainty?
This paper concentrates on the first of these questions and discusses some of the main attempts made by economic theory to understand how economic agents go about the business decision-making under conditions of risk and uncertainty.
Theoretical possibilities considered in the context of decisions under conditions of risk include: Expected value maximization, Expected utility maximization, Rank dependent utility maximization, Prospect theory, and the Topology of fear approach to decision-making in the face of catastrophic risk. This paper also considers empirical tests of these theoretical possibilities and some of the anomalies and responses thrown up by those tests such as: Allais Paradox, Discovered Preference Hypothesis, and the choice behaviour of CEOs when faced with risk.
The paper concludes with a brief excursion into choice under uncertainty where, unlike in risky choice situation, the existence of objective probabilities over states of the world cannot be relied on. In that context, the author briefly canvases the Subjective Expected Utility approach — which is unable in general to account for ambiguity aversion — Choquet utility, Wald's Multiple Priors, and the Case Based approach
This paper highlights the fact that the rich and fascinating field of decision-making under risk and uncertainty is characterized by a constant interplay between theoretical conjecture, empirical testing, and theoretical refinement. Such interplay is mirrored by this paper and contributions in the Colloquium Section of this Issue, where the thoughts of practitioners and academics interact.
... Following Tversky (1969), the role of similarity in choice has been studied in many experiments. The vast majority of these focus on elf-interested choices between gambles ( Lindman and Lyons 1978;Budescu and Weiss 1987;Mellers et al. 1992;Leland 1994;Raynard 1995;Buschena and Zilberman 1995;1999;Goldstone et al. 1997;Day and Loomes 2010;Loomes 2010;Regenwetter et al. 2011;Brandst?tter and Gussmack 2013;Loomes and Pogrebna 2014), but some also examine the influence of similarity on other choices, including the self-interested trade-off between commuting time and wage (Mellers and Biagini 1994) and self-regarding inter-temporal trade-offs (Rubinstein 2003). ...
When people must either save a greater number of people from a smaller harm or a smaller number from a greater harm, do their choices reflect a reasonable moral outlook? We pursue this question with the help of an experiment. In our experiment, two-fifths of subjects employ a similarity heuristic. When alternatives appear dissimilar in terms of the number saved but similar in terms of the magnitude of harm prevented, this heuristic mandates saving the greater number. In our experiment, this leads to choices that are inconsistent with all standard theories of justice. We argue that this demonstrates the untrustworthiness of distributive judgments in cases that elicit similarity-based choice.
... Therefore, this study reinforces the evidence that health is a fundamentally different commodity than money, with a positive correlation between concavity for gains and for losses. Instead, 'diminishing sensitivity' or reflection at the individual level, with a positive correlation between concavity of utility for gains and convexity for losses, is often found in the monetary domain (Abdellaoui et al., 2007;Abdellaoui et al., 2013;Budescu and Weiss, 1987;Schoemaker, 1990). However, the observed risk aversion in both gains and losses may also have been an artefact of the within-subject design of our study; that is, respondents could have had a preference to be consistent across domains, which would explain the high interdomain correlation. ...
... Other studies (Cohen et al., 1985) concluded that subjects exhibit consistent risk attitudes in gains and losses. For an overview refer to the literature (Budescu and Weiss, 1987;Camerer, 1997;Camerer, 2003b;Fishburn and Gehrlein, 1977;Machina, 1982;Neale and Bazerman, 1985). Preston and Baratta (1948) were the first to explore whether individuals accounts for chance events at their true mathematical probabilities or whether they systematically distorted probabilities in their presumed expectation maximizing choices. ...
... The authors labeled this reversal of preferences around 0 the reflection effect. Budescu and Weiss (1987) found 82% of their subjects displayed concavity for gains and convexity for losses. Related evidence include: Fiegenbaum and Thomas (1988); Lowenstein (1988), Terence Odean (1988); Platt and Glimcher (1999); Smith et al. (2002); Breiter et al., (2001); and Abdellaoui et al. (2006). ...
This work elicits the utility functions of financial practitioners and measures their loss aversion coefficients under prospect theory (1992) using the parameter-free method of Abdellaoui et al. (2006). The measurements in the field corroborate the latter's measurements in the laboratory regarding the concavity of the utility function for gains and convexity for losses. However, although loss aversion exists in the aggregate, the median practitioner is found to be less loss averse than the median student. Conditions that characterize a real market experience but are difficult to realize in the artificial context of the laboratory may account for the behavioral difference. Among them are the schooling in the assessment of prospects, the volatility of the market and the Wall Street's compensation incentives. An important proviso is that the preferences of the students/practitioners analyzed following another method reflect consistent preferences. The qualitative investigation of the preferences of MBA students using the parameter-free method developed by Baucells and Heukamp (2006) supports the results of Abdellaoui et al.'s (2006) for students. A noteworthy result is the strong tendency to shift from loss aversion to gain seeking for the higher overall probability of gain or the higher probability of maximal gain combined with a limited extreme loss.
... Several studies have shown that people's preferences between uncertain alternatives can be inconsistent with the axioms underlying SEU theory. One fundamental violation of the assumptions is that preferences can be intransitive (Tversky, 1969;Budescu and Weiss, 1987). Also, as mentioned earlier, subjective probabilities may depend on the values of consequences (violating the independence axiom), and as discussed in the next section, the framing of a choice can affect preference. ...
IntroductionDecision-Making ModelsGroup Decision MakingDecision Support and Problem SolvingSummary and Conclusions
References
... Other studies (Cohen et al., 1985) concluded that subjects exhibit consistent risk attitudes in gains and losses. For an overview refer to the literature (Budescu and Weiss, 1987;Camerer, 1997;Camerer, 2003b;Fishburn and Gehrlein, 1977;Machina, 1982;Neale and Bazerman, 1985). Preston and Baratta (1948) were the first to explore whether individuals accounts for chance events at their true mathematical probabilities or whether they systematically distorted probabilities in their presumed expectation maximizing choices. ...
Decision theory refers to the analysis, formalization, and prediction, through mathematical models, of optimal and real decision-making; it involves the process of selection of perceived solutions, actions, and outcomes to a given problem from a set of possible alternatives. Depending on the extent of possible quantification, presence of uncertainty, number of decision makers, and number of objectives, decision theory is classified as quantitative or qualitative, deterministic or stochastic, single or multiple party, and single or multiobjective. The management of water resources systems involves unavoidable natural and social conditions of risk and uncertainty and multiple competing or conflicting parties and objectives, which introduce the risks of high economic and social costs due to wrong decisions, necessitating the formulation of models that adequately represent a given situation by incorporating all factors affecting it. Hence, the adequate modeling of such systems should incorporate risk and uncertainty; decision theory under risk and uncertainty is called decision analysis or risk management. Risk management approaches may be broadly categorized as nonprobability and probability based techniques. Non-probability based techniques include sensitivity analysis, decision criteria, analytical hierarchy, and game theory; probability based techniques include scenario analysis, moments, decision trees, expected value, stochastic optimization, Bayesian and fuzzy analysis, and downside risk measures such as Value-at-Risk and Conditional Value-at-Risk metrics. Many of these methods, though very useful, suffer from critical shortcomings: sensitivity and scenario analysis only provide some intuition of risk, expected value fails to highlight extreme-event consequences, decision trees and hierarchical approaches fail to generate robust and efficient solutions in highly uncertain environments, central moments do not account for fat-tailed distributions and penalize positive and negative deviations from the mean equally, recourse does not provide means to control risk, and Value-at-Risk does not provide information about the extent and distribution of the losses that exceed it and is not coherent. Game theory, used in situations of multiple party decision making, suffers from several systematic violations, such as the common consequence, preference reversal, and framing effects. To account for some of these shortcomings, several extensions and alternatives have been suggested such as the conditional-Value-at-Risk and behavioral game theory.
... 1045). Results of human decision-making research are generally consistent with the notion of loss aversion (e.g., Budescu & Weiss, 1987;Kahneman, Knetsch, & Thaler, 1990;Schneider & Lopes, 1986;Tversky & Kahneman, 1991). For example, research shows that concessions made by an opposing negotiator loom larger when these are framed as an increase in others' losses rather than as a decrease in others' gains (De Dreu, Carnevale, Emans, & Van de Vliert, 1994). ...
The main aim of this paper is to investigate the impact of behavioral biases on the decisions of Jordanian investors. This empirical study investigated the impact of six behavioral finance biases and their impact on Jordanian investors’ financial decisions in the Amman Stock Exchange (ASE). Specifically, this paper empirically examines the impact of cognitive and emotional biases such as overconfidence, representation, availability, loss aversion, anchoring and regret aversion on investors’ financial decisions. Following Chaffai and Medhioub’s (2014) methodology, the paper applied the questionnaire-based approach and managed to collect 693 responses out of 2000 questionnaires (34.65 percent response rate) during the last five years. The main result achieved is that Jordanian investors take their decisions by falling for three main biases such as overconfidence, loss aversion, and anchoring. Jordanian investors believe that their decisions will lead to positive gains even if they are not based on highly developed models that can be used to direct investment strategies.
This chapter provides an overall perspective on human decision making to human factors practitioners, developers of decision tools, product designers, and others who are interested in how people make decisions and how decision making might be improved. It presents a broad set of prescriptive and descriptive approaches. The chapter introduces principles of rational choice suggested by classical decision theory, followed by a discussion of research on human decision making which has led to the new perspectives of behavioral decision theory and behavioral economics, and naturalistic decision models. It addresses the topic of decision support and problem solving. The main idea of adaptive decision behavior, or contingent decision behavior, is that an individual decision maker uses different strategies in different situations. The chapter also addresses methods of supporting or improving group decision making. Expert systems are developed to capture knowledge for a very specific and limited domain of human expertise.
This experiment tested transitivity of preferences in individuals using the stimulus design of Butler and Pogrebna (2018). That design was constructed to find violations of transitivity that would occur if people chose the alternative with a higher probability of yielding better outcomes. Each choice problem was presented 60 times (replicated twice in each of 30 sessions). The individual true and error (TE) model was used to estimate incidence of transitive and intransitive preference patterns and error rates for each choice problem for each person. Although the data of most participants were consistent with transitivity, 7 of 22 participants showed significant evidence of intransitive preferences patterns at least part of the time, and 14 participants showed evidence of changing true preferences over time. Systematic violations of the assumption that responses are independently and identically distributed (iid) were observed. Although TE models assume errors are mutually independent, they do not imply that responses will satisfy iid; instead, responses will violate independence when there is a mixture of preference patterns. Markov true and error (MARTER) models in which parameters can change gradually over sessions imply positive correlations between the frequency of preference reversals and the gaps between sessions. Positive correlations were observed for 21 of 22 participants; these were significant for all but 7, 4 of whom were compatible with a single true preference pattern throughout the study. Advantages of TE models (which can analyze response patterns and choice proportions) over older approaches (which analyze only binary choice proportions) are discussed.
Cet article a pour objectif d'analyser l'influence des facteurs comportementaux sur la décision d'investir. En effet, nous avons adopté un modèle conceptuel qui définit l'influence sur la décision d'investir par deux facteurs, en l'occurrence le biais cognitif et le biais émotionnel, ces deux variable latentes on été expliqués par sept variables explicatives. Par la suite nous avons distribué un questionnaire qui a été élaboré à partir du cadre conceptuel de la recherche. L'analyse statistique nous a permis de faire ressortir un ensemble de résultats. L'étude a démontré empiriquement l'influence des facteurs comportementaux sur la décision d'investir.
Abstract The purpose of this article is to analyze the influence of behavioral factors on the decision of invest. Indeed, we adopted a conceptual model which defines the influence on the decision of invest by two factors, namely cognitive and emotional bias, these two latent variables have been explained by seven explanatory variables. Subsequently we distributed a questionnaire which was developed from the conceptual framework of the research. Statistical analysis allowed us to highlight a set of results. The study empirically demonstrated the influences of behavioral factors on the decision of invest.
Building upon the conceptualization of affordances, this article leverages the theoretical framework of task-technology fit in e-commerce to explore the consequences of alignment and misalignment of technology’s affordances and user’s intended goals. More specifically, the objective of this article is to investigate the effect of the alignment between the affordances of technological devices and tasks performed on these devices on the user’s shopping experience. A within-subject controlled laboratory experiment was conducted. Twenty-five participants were asked to complete six digital-grocery related tasks of equivalent nature on both a computer and a smartphone. Study results highlight two primary findings. First, the affordances of the device on which digital shopping tasks are performed affect the user’s cognitive and emotional states. Performing digital shopping tasks on a smartphone generates a higher cognitive load (cognitive state), as well as a more positive emotional valence and greater arousal (emotional state) for users. Second, the results, however, do not provide enough evidence to conclude that the type of task (user goal) moderates the previously found relationship. Limitations and future research directions are discussed.
Purpose
The purpose of this paper is to test for gender-specific effects on odor-induced taste enhancement and subsequent food consumption in olfactory food marketing.
Design/methodology/approach
Lab experiments conducted among female and male participants using vanillin as a stimulus and ratings of sweetness, taste pleasantness and eating of sugar-free food as measures.
Findings
Odor-induced taste enhancement is gender-specific. Female consumers outperform male consumers in olfactory reaction and sweetness perception. While men outperform women in food consumption.
Research limitations/implications
Odor intensity was set to the concentration level of 0.00005per cent according to the findings from (Fujimaru and Lim, 2013). The authors believe that this intensity level is appropriate for both men and women. Still, there may be some gender effects on intensity levels, which are not explored here. The author’s test for the effects of one personal factor, gender and odor-induced taste enhancement of sugar-free food. The authors think that investigating the combined effects of more personal factors such as age, culture and so on adds to the accuracy of the results.
Practical implications
It seems that the stronger sensory capacities of women in terms of odor detection and recognition already confirmed in the literature extends to the cross-modal effects of this sensory detection and recognition on taste enhancement. It seems appropriate to tailor olfactory food advertising according to the gender of the target audience.
Originality/value
Odor-induced taste enhancement is still a novel subject in marketing. While most of the research has investigated the effects of smelling congruent odors on taste perception and food consumption among mixed groups of men and women, the value of this paper lies in the investigation of the potential moderating effects of gender on this relationship.
In this paper, we use a laboratory experiment to analyze the effect of social preferences in a coordination game with Pareto-ranked equilibria. Inequality is increased by increasing the coordination payoffs of some subjects while the coordination payoffs of others remain unchanged. Theoretically, in this setting, inequality aversion may lead to a negative relationship between inequality and coordination success, while total payoff motivations lead to a positive relationship. Using a within-subject experimental design, we find that more inequality unambiguously yields a higher level of coordination success. Furthermore, this result holds even for subjects whose payoffs remain unchanged. Our results suggest that total payoff motivations drive the positive relationship between inequality and coordination success found in this experiment. Moreover, our data highlight that the order of treatment matters. Groups facing over time a reduction in inequalities reach the efficient outcome more often, over the entire experiment, compared to groups facing over time an increase in inequalities. This study thus contributes to understanding whether social preferences and variations in inequality affect the outcome of coordination problems.
Menschen müssen ständig unterschiedlichste Situationen beurteilen oder Entscheidungen treffen. Dabei können die Informationen mehr oder weniger eindeutig und die Folgen der Entscheidung mehr oder weniger schwerwiegend sein. Die Psychologie erforscht die Struktur von Urteilen und Entscheidungen sowie Einflussfaktoren und Prozesse, die sowohl „gute“ als auch „irrationale“ Urteile und Entscheidungen hervorbringen. Die empirische Erforschung des Urteilens und Entscheidens hat faszinierende Einblicke in die einzelnen Bestandteile des Entscheidens gewährt, zum Bespiel über typische Fehlleistungen, verwendete Strategien der Suche nach relevanter Information sowie über deren weitere Verarbeitung. Spannende Befunde und die daraus entwickelten psychologischen Theorien des Urteilens und Entscheidens werden in diesem Kapitel vorgestellt.
Schlüsselwörter: Urteilen; Entscheiden; Informationsverarbeitung; Rationalität; Heuristik; Täuschungen; Strategie
Bowman (1980) found an unexpected and paradoxical negative relationship between risk and return in many firms across industries. This article summarizes major findings concerning this so called risk/return paradoxon. Following an assessment of previous research the authors develop a framework based on prospect theory and contingency approach for a further investigation of the phenomenon. Based on a sample of 155 firms (groups), it is shown that the risk/return paradoxon is valid for German groups. This is a surprising result given that groups are established among other things with the intention to reduce risk. In addition, the results show that diversification and size are variables that effect the risk of a group. These results support the basic propositions of prospect theory and are robust within and across industries. Some implications for further research are discussed.
Subjective expected utility (SEU) embodies four distinct principles of rational behavior. Although all have been called into some question empirically, the least plausible and least studied is the property that formally equivalent gambles are treated as indifferent in preference. The paper describes some results that arise when this property is sharply weakened and to some degree replaced by alternative rational and not-so-rational-assumptions. The resulting utility representations, like SEU, are weighted averages of the utilities of consequences, but with the weights dependent on more than the underlying chance event. In rank-dependent cases, which arise from a restricted assumption about formally equivalent gambles, the weights depend on the rank position of the corresponding consequence. In rank- and sign-dependent models, they depend both on the rank position of the consequence associated to the event and on whether it is a gain or a loss. The theory giving rise to the latter involves an additional primitive, namely, joint receipt of gambles, in terms of which new rational and irrational assumptions are invoked. The result generalizes prospect theory to gambles with more than a single gain and a single loss. © 1990, Association for Psychological Science. All rights reserved.
Information about event probability upon which decisions depend may be more or less precise. The first section of this paper reports three experiments that investigated the relationship between this type of imprecision and the prominence that outcomes obtain in decisions. Participants had to rank order sets of six lotteries according to attractiveness. While the lotteries' values were always precisely known precision of information about lottery chances varied. These experiments showed that increasing ambiguity tied decisions closer to lottery values. The second section shows that modeling participants' decisions with the contingent weighting model suggests that this outcome prominence effect was not necessarily caused by any change in the respective weighting of probability and outcome information, but that it had probably occurred for purely mathematical reasons. The third part of this paper explores, by means of a computer simulation, (i) which weighting strategy is optimal when probabilities are imprecise and (ii) how participants' decision behavior compared to a simple, but better adapted strategy. It shows that the weighting of probability information should not change with decreasing precision and it implies that participants' performance suffered most from a lack of strategic consequence. Implications for decision making policy in general are discussed.
Making a choice between multidimensional alternatives is a difficult task. Therefore, a decision maker may adopt some procedure (heuristic) to simplify this task. We provide an axiomatic model of one such heuristic called the Intra-Dimensional Comparison (IDC) heuristic. The IDC heuristic is well-documented in the experimental literature on choice under risk. The IDC heuristic is a procedure in which a decision maker compares multidimensional alternatives dimension-by-dimension and makes a decision based on those comparisons. The model of the IDC heuristic provides a general framework applicable to many different contexts, including risky choice and social choice.
Several apparent violations of transitivity have been reported in the literature on decision making. However, these effects have been shown to be compatible with random preference models, in which preferences are transitive at each point in time but vary at random over time. Such models imply that choice proportions will conform to a set of conditions called the triangle inequalities, and no clear triangle inequality violations have been empirically demonstrated to date. This article examines a broader class of choice models—“context-sensitive preference models”—in which the current and prior history of choice contexts can systematically influence decision makers’ stochastic preferences. These models generate violations of the triangle inequalities even when preferences are always transitive. Furthermore, the article develops an analysis of decision making under incomplete information, in which rational decision makers draw inferences from the present choice context, but have limited memory for past contexts. It is shown that such decision makers can exhibit intransitive choice cycles of arbitrary magnitude as a result of context-dependent switching between transitive preference orders. Two experiments test the model’s predictions, and clear violations of the triangle inequalities are observed.
The research of Daniel Kahneman and Amos Tversky, especially prospect theory, has transformed our view of the decision making process. In this paper, we present the behavioral approach and show how it throws light on the ins and outs of the decision process in a strategic context. For that purpose, we first describe the two successive stages of the decision process. During the first edition stage, the decision-maker performs a preliminary analysis of the available prospects. In a second evaluation stage, the decision-maker compares the various prospects and chooses the best one. The aim of the paper is to show that the prospects are not analyzed objectively but subjectively by the decision-maker. Thanks to the experimental economics, we are able to underline several behavioral biases such as optimism, conservatism or losses aversion. These biases are then naturally integrated within the framework of behavioral models, following the pioneering work of Daniel Kahneman and Amos Tversky.
In their famous 1982 paper in this Journal, Loomes and Sugden introduced regret theory. Now, more than 30 years later, the case for the historical importance of this contribution can be made.
Even when the amount of loss reduction is exactly the same, a protective action that leaves no loss may be valued more than others that leave some. It is called “zero-risk effect, ” which was examined in this study. One hundred and forty-four undergraduates rated their willingness to pay (WTP) for three protective actions that would leave 800, 400, or 0 deaths. Results showed that the WTP difference between actions resulting in 400 deaths and no death was larger than that between actions resulting in 800 deaths and 400 deaths. The effect was shown not only in a negative framing condition, but also in a positive one. The results thus established the robustness of zero-risk effect, which cannot be explained in terms of the negative framing effect. Finally, implications for risk management and risk communication were discussed.
Two hundred and forty research participants of varying ages completed a two-part procedure in which framing experiments were conducted and personality factors were assessed. We operationally defined information framing according to the attribute-, goal-, and risky choice-framing paradigms and made our tasks as similar as possible to everyday risky health decisions. Individual difference variables were measured by the Eysenck Personality Questionnaire-Revised, the Carver’s BIS–BAS scales, the Barratt Impulsiveness Scale, the Multidimensional Health Questionnaire, and Coronary Heart Disease specific items. Framing valence effects were in keeping with the literature, with more risk-taking in the negative risky choice framing valence condition and more negative health status evaluation in the negative attribute-framing valence condition. Respondents’ personality, in particular Impulsiveness, Anxiety, Health Involvement and Health Negative Affect, correlated with message effectiveness in the goal-framing task and with the observed risk attitude in the risky choice task. These findings expand the literature on personality and risk-taking by demonstrating the joint role of personality factors and situational factors on decisions to promote good health or prevent bad health.
When one prospect is certain and the other uncertain, Cumulative Prospect Theory employs the certainty equivalent methodology to estimate Decision Weights (DW). However, DW may be different with two uncertain prospects. In this study, we neutralize the "certainty effect" and propose Stochastic Dominance (SD) to estimate DW for the first time with small probabilities, which is the raison d'être of the employment of DW. Using SD we provide ranges, rather than point estimates, of DW parameters that are consistent with all possible S-shape value functions. Comparing CE and SD implied DW, we find that DW are situation dependent: DW derived with one certain prospect are much different than those derived with two uncertain prospects.
A number of mathematical models for overcoming intransitive choice have been proposed and tested in the literature of decision theory. This article presents the development of a new stochastic choice model based on multidimensional scaling. This allows decision-makers to have multiple viewpoints, whereas current multidimensional scaling models are based on the assumption that a subject or group of subjects has only one viewpoint. The implication of our model is that subjects make an intransitive choice because they are able to shift their viewpoint. This paper also presents the maximum likelihood estimation of the proposed model, and reanalyzes Tversky's gamble experiment data.
In most models of (cumulative) prospect theory, reference dependence of preferences is imposed beforehand and the location of the reference point is determined exogenously. This paper presents principles that provide critical tests and foundations for prospect theory preferences without assuming reference-dependent preferences a priori. Instead, reference dependence is derived from behavior and the reference point arises endogenously.
During the past 10 years, there has been continuing discussion of a central idea of prospect theory: individuals' risk-taking behavior will differ depending on whether they perceive themselves to be in the negative domain (the donmin of losses) or the positive domain (the domain of gains). Specifically, prospect theory proposes that individuals will be risk seeking in the negative and risk averse in the positive domain. During this same period, the study of group behavior has continued, and there has been consideration of group factors that may affectrisktaking. However, there has been no systematic effort to establish direct linkages between the group behavior and the prospect theory literature. In this article, we begin by reviewing the two literature streams and suggesting linkages. Based on the linkages we see, we propose a series of testable hypotheses that we believe can establish a research agenda for those working in this area. Finally, we propose implications for managers and practitioners.
213 male undergraduates were assigned to 2 groups. The Ss in both groups were asked to indicate the gamble that they would most prefer to play from among each of 18 pairs of gambles. The Ss in Group H (hypothetical) (N = 184) made hypothetical choices. They did not actually play any of their preferred gambles. The 29 Ss in Group RP (real play), after making their choices, played a number of gambles to determine their salary. When choices were hypothetical, Ss maximized gain and discounted the possibilities of loss. When Ss knew they would have to play their preferred gambles, they were more cautious, preferring better odds and smaller losses. (PsycINFO Database Record (c) 2012 APA, all rights reserved)
Conducted 7 experiments to explore different ways of predicting frame choice by individuals and groups. The way in which a decision problem is framed can have strong and predictable effects on the perceived attractiveness of the options it offers. At times, the relative attractiveness of 2 options may be reversed as the result of a reframing that should make no difference at all. 957 Ss read a story problem about civil defense expenditures and various solutions framed in different ways. Results were generally discouraging for the prediction of individuals' choices and generally encouraging for the prediction of group choices. Ss preferred the gamble to the sure loss, no matter how it was worded. This result supports the prospect theory. (10 ref) (PsycINFO Database Record (c) 2012 APA, all rights reserved)
Reveals that, under specified experimental conditions, consistent and predictable intransitivities can be demonstrated. The conditions under which intransitivities occur and their relationships to the structure of the alternatives and to processing strategies are investigated within the framework of a general theory of choice. Implications to the study of preference and the psychology of choice are discussed. (33 ref.) (PsycINFO Database Record (c) 2012 APA, all rights reserved)
Concerned with understanding how people make decisions about gambles when the relevant probabilities and payoffs are explicitly stated. It is proposed that decisions may be determined by a person's beliefs about the relative importance of probabilities and payoffs and by limitations on his ability to act on the basis of these beliefs when processing the information that describes a gamble. An explanation based on this information-processing orientation is offered as an alternative to present notions about probability and variance preferences. 2 experiments are reported to indicate the usefulness of considering gambling decisions within the context of information processing. (52 ref.) (PsycINFO Database Record (c) 2012 APA, all rights reserved)
In a recent new theory of decision making under risk (called prospect theory), Kahneman and Tversky suggest that people's preferences among lotteries on the loss side are a mirror image of those on the gain side. This article examines the reflection hypothesis at both an across-subject and within-subject level. Since significant reflection at either level does not necessarily imply significant reflection at the other, upper and lower bounds are computed for each. Four types of within-subject reflectivity are distinguished and analyzed. Relationships among these types are examined theoretically as well as empirically. Experimental results from three separate studies are presented, which seriously question the generality of prospect theory's reflection hypothesis.
The concept of subjective probability is investigated in Levin's level of aspiration, Tolman's principles of performance, Rotter's fundamental equation in social learning theory, Edward's subjectively expressed utility (SEU) model in decision theory, and Atkinson's risk-taking model. Though from different areas in psychology, the similarity of these concepts is demonstrated. One discrepancy between the concepts, however, is open to experimental investigation: are valences, reinforcement values, and utilities independent of subjective probability or not? Experiments to test this are outlined. (36 ref.)
Tversky (Psychological Review, 1969, 76, 31–48) found that some subjects can be induced to make intransitive choices among gambles. The gambles were so designed that for some pairs the subjects were inclined to choose on the basis of monetary values, while for others they were inclined to choose on the basis of the probabilities. This study replicates and expands Tversky's. The two principal findings are: (1) Tversky's results can be replicated using unselected subjects. (2) If subjects are forced to be transitive, by requiring them to evaluate the bets individually on a monetary scale, most resolve the intransitivity in favor of maximizing expected value.
Two studies conducted simultaneously investigated the influence of positive affect on risk taking. Results of the study, which employed an actual measure of subjects' willingness to bet something of value, supported the prediction of an interaction between level of risk and positive affect: subjects who had reason to be feeling elated bet more than control subjects on a low-risk bet, but wagered less than controls on a high-risk bet. At the same time, in contrast, a study involving hypothetical risk-taking showed that in general subjects were more willing to take the chance as probability of success went up; but that elated subjects were more daring than controls on a “long shot.” Differences in hypothetical vs real risk taking were noted, and the complexity (the interaction) of the influence of positive feelings on real risk taking was emphasized. The results were related to other research suggesting an influence of feeling states on cognitive processes and decision making.
A basic assumption in theories of rational decision making is that preferences should be transitive (Edwards, 1954, 1961; Luce & Suppes, 1965; Samuelson, 1953). A preference-or-indifference relation, denoted ≳, is transitive if for all x, y and z
$$ x{\underset{\raise0.3em\hbox{$\smash{\scriptscriptstyle\thicksim}$}}{ > }}y\,and\,y\,{\underset{\raise0.3em\hbox{$\smash{\scriptscriptstyle\thicksim}$}}{ > }}z\,imply\,x{\underset{\raise0.3em\hbox{$\smash{\scriptscriptstyle\thicksim}$}}{ > }}z. $$ (1).
Presents examples in which a decision, preference, or emotional reaction is controlled by factors that may appear irrelevant to the choice made. The difficulty people have in maintaining a comprehensive view of consequences and their susceptibility to the vagaries of framing illustrate impediments to rational decision making. However, experimental surveys indicate that such departures from objectivity tend to follow regular patterns that can be described mathematically. The descriptive study of preferences also challenges the theory of rational choice, as it is often unclear whether the effects of decision weights, reference points, framing, and regret should be considered as errors or biases or whether they should be accepted as valid elements of human experience. (PsycINFO Database Record (c) 2012 APA, all rights reserved)
This Note extends the work reported in Payne, Laughhunn, and Crum (Payne, J. W., D. J. Laughhunn, R. Crum. 1980. Translation of gambles and aspiration level effects in risky choice behavior. Management Sci. 26 1039--1060.) on the need to incorporate a target return, reference point, or aspiration level concept in the analysis of risky choice behavior. Two experiments are reported. The first experiment provides a more complete test of the model of reference point effects developed by Payne, Laughhunn, and Crum. A translation of outcomes procedure, which adds a constant to all outcomes, was used to vary the relationship of pairs of gambles to an assumed target or reference point. The results fully support the model. The second experiment provides evidence of the conceptual validity of the model by using explicit instructions to vary the target levels of managers, while holding gamble values constant.
Two recent models of risky decision making developed by Fishburn (Fishbijrn, P. C. 1977. Mean-risk analysis with risk associated with below-target returns. Amer. Econ. Rev. 67 116--126.) and by Kahneman and Tversky (Kahneman, D., A. Tversky. 1979. Prospect theory: an analysis of decisions under risk. Econometrica 47 262--291.) have emphasized the importance of a target return or a reference point in determining preferences and choices among gambles. Target returns and reference points represent variations on the concept of an aspiration level, an old idea in theories of decision making. Additional evidence on the need to incorporate such a concept in the analysis of risky choice behavior is presented in this paper. In three experiments, the relationship of pairs of gambles to an assumed reference point was varied by adding or subtracting a constant amount from all outcomes. The results demonstrate that such translations of outcomes can result in the reversal of choice within pairs of gambles. The effect of such translations on choice depended on whether the size of the translation was sufficient to insure that one gamble in a pair had outcome values either all above or all below the reference point, while the other gamble had outcome values both above and below the reference point. A model of the effects of a reference point on risky choice behavior is presented and the results are also discussed in terms of the Fishburn and Kahneman-Tversky models, as well as other theories of risky decision making.
A parsimonious extension to the Expected Utility (EU) model is proposed involving one additional parameter. The model is an example of a Subjectively Weighted Utility (SWU) model, which differs from the EU model only in the way probabilities are incorporated. The probability transformation is of a form that has appeared in the literature on human information processing and the additional parameter α has been interpreted as an index of information processing performance.The SWU model is shown to have considerable descriptive ability. It is discussed in the context of the substitutability axiom, distinct utility curves, insurance purchasing and gambling behavior, and probability variance preferences.
Thirty empirically assessed utility functions on changes in wealth
or return on investment were examined for general features and susceptability
to fits by linear, power, and exponential functions. Separate fits
were made to below-target data and above-target data. The usual "target"
was the no-change point. The majority of below-target functions were
risk seeking; the majority of above-target functions were risk averse;
and the most common composite shape was convex-concave, or risk seeking
in losses and risk averse in gains. The least common composite was
concave-concave. Below-target utility was generally steeper than
above-target utility with a median below-to-above slope ratio of
about 4.8. The power and exponential fits were substantially better
than the linear fits. Power functions gave the best fits in the majority
of convex below-target and concave above-target cases, and exponential
functions gave the best fits in the majority of concave below-target
and convex above-target cases. Several implications of these results
for decision making under risk are mentioned.
The psychological principles that govern the perception of decision problems and the evaluation of probabilities and outcomes
produce predictable shifts of preference when the same problem is framed in different ways. Reversals of preference are demonstrated
in choices regarding monetary outcomes, both hypothetical and real, and in questions pertaining to the loss of human lives.
The effects of frames on preferences are compared to the effects of perspectives on perceptual appearance. The dependence
of preferences on the formulation of decision problems is a significant concern for the theory of rational choice.
Analysis of decision making under risk has been dominated by expected utility theory, which generally accounts for people's actions. Presents a critique of expected utility theory as a descriptive model of decision making under risk, and argues that common forms of utility theory are not adequate, and proposes an alternative theory of choice under risk called prospect theory. In expected utility theory, utilities of outcomes are weighted by their probabilities. Considers results of responses to various hypothetical decision situations under risk and shows results that violate the tenets of expected utility theory. People overweight outcomes considered certain, relative to outcomes that are merely probable, a situation called the "certainty effect." This effect contributes to risk aversion in choices involving sure gains, and to risk seeking in choices involving sure losses. In choices where gains are replaced by losses, the pattern is called the "reflection effect." People discard components shared by all prospects under consideration, a tendency called the "isolation effect." Also shows that in choice situations, preferences may be altered by different representations of probabilities. Develops an alternative theory of individual decision making under risk, called prospect theory, developed for simple prospects with monetary outcomes and stated probabilities, in which value is given to gains and losses (i.e., changes in wealth or welfare) rather than to final assets, and probabilities are replaced by decision weights. The theory has two phases. The editing phase organizes and reformulates the options to simplify later evaluation and choice. The edited prospects are evaluated and the highest value prospect chosen. Discusses and models this theory, and offers directions for extending prospect theory are offered. (TNM)
Experiments on decisions under risk: The expected utility hy-pothesis. Boston: Nijhoff. Slavic, I? (1%9). Differential effects of real versus hypothetical payoffs on choices among gambles
- F Schoemaker
Schoemaker, F? J. H. (1980). Experiments on decisions under risk: The expected utility hy-pothesis. Boston: Nijhoff. Slavic, I? (1%9). Differential effects of real versus hypothetical payoffs on choices among gambles. Journal of Experimental Psychology, 80, 434-437.