The central idea of Disappointment theory is that an individual forms an expectation about a risky alternative, and may experience disappointment if the outcome eventually obtained falls short of the expectation. We abandon the hypothesis of a well-defined prior expectation: disappointment feelings may arise from comparing the outcome received with anyof the gamble’s outcomes that the individual failed to get. This leads to a new, general form of Disappointment model. It encompasses Rank Dependent Utility with an explicit one-parameter probability transformation, and Risk-Value models with a generic risk measure including Variance, providing a unifying behavioral foundation for these models. Copyright Springer Science + Business Media, LLC 2006Disappointment theory, Rank Dependent utility, Risk-value models, Mean-variance, Expected Utility violations,

One of the fundamental postulates of rational choice is that preferences manifested by an individual towards alternatives should only depend on the merits of these alternatives and not on extraneous, irrelevant factors. Violations of this basic principle, so-called preference reversals, have puzzled researchers for over twenty years and raised concerns about the use of preference modeling in decision analysis. The present work seeks to further determine the nature of these phenomena, in particular the role played by response mode in certain types of preference reversals. Hershey and Schoemaker (1985) found Probability and Certainty Equivalents to differ systematically and attributed this difference to a framing effect. Here, we generalize their experimental design to control for framing effects and study biases on a larger scope. Our results show that biases do not disappear in the absence of framing, instead they reveal a clear and pervasive bias occurring under more controlled experimental conditions than previously known: direct trade-offs between two attributes X and Y are biased depending on whether X is traded off against Y, or Y traded off against X. From among several hypotheses, the data lend support to the general principle of compatibility (Tversky et al. 1988; Slovic et al. 1990), which implies that an attribute receives more relative weight when it is used as "currency" in trading off.decision analysis, utility theory, preference models, heuristics and biases

Previous research has documented the lack of clear relationships between the value of information and characteristics of the decision problem. This paper shows that the intensity of the decision maker's preference toward the prior choice alternatives can be regarded as the primary determinant of information value. The value of an information source, measured in utility units, is maximal when the decision maker is indifferent vis-à-vis the prior alternatives, and it is lower as the preference for one alternative over the others gets stronger. This holds under quite general conditions, which are made explicit, and for any decision maker's utility function, wealth, and background risks. The maximum buying price of information follows the same pattern for linear utility and, with a restriction, exponential utility, and this may hold approximately for other types of utility functions. The result provides a general, concise, and intuitive explanation for seemingly ill-behaved variations in the value of information. It indicates that nonmonotonic, quasi-concave relationships should generally be expected between value of information and parameters of the decision problem.

Participants in four studies were faced with everyday-life decision scenarios involving risk, such as purchasing an airline ticket whose price may change. They were asked to state their maximum willingness to pay (WTP) for resolving the uncertainty with either perfect information or an option. The two are strategically equivalent, therefore, should be valued in the same way. Across all experiments, individuals tend to value the option more than the information. In addition, the distributions of responses reveal frequent and gross violations of normative bounds. Contrary to normative predictions, no relationship is found between individuals' valuation of the gamble and their reported WTP for information or option. Furthermore, although participants pay attention to the probabilities of outcomes in valuing the gambles, they ignore the probabilities in valuing uncertainty resolution. Several reasoning heuristics that participants use to come up with a value of information are identified, and it appears that the Information and Option contexts tend to trigger different heuristics. Shift in reference point and regret are consistent with the Information-Option valuation discrepancy.

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