A tractable method to measure utility and loss aversion under prospect theory

Abdellaoui, Mohammed; Bleichrodt, Han; l’Haridon, Olivier

doi:10.1007/s11166-008-9039-8

Cited by 279 publications

(80 citation statements)

References 40 publications

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“…L, S/L). The percentage of consistent choices among our subjects was then computed to obtain four average consistency rates-80% for S, 71% for S/L, 72% for both utility and L-which appear to be in line with those obtained in similar previous studies (see for instance Abdellaoui 2000;Abdellaoui et al 2008;Camerer 1992). …”

Section: Experimental Designsupporting

confidence: 74%

“…'heterogeneous'). 8 Linear interpolation could not be used here, neither for replacing estimation as in Abdellaoui et al (2008Abdellaoui et al ( , 2009, nor for checking estimation reliability as in Bleichrodt and Pinto (2000). Indeed, the rather big distance between two successive points of the standard sequence made it impossible to assume linearity between them (see Wakker and Deneffe 1996).…”

Section: Methodsmentioning

confidence: 99%

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Probability weighting and the ‘level’ and ‘spacing’ of outcomes: An experimental study over losses

Etchart-Vincent

2009

J Risk Uncertain

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Section: Experimental Designsupporting

confidence: 74%

Section: Methodsmentioning

confidence: 99%

Probability weighting and the ‘level’ and ‘spacing’ of outcomes: An experimental study over losses

Etchart-Vincent

2009

J Risk Uncertain

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“…This indicates that the extremity of these events makes them seem more probable than they are. The overestimation of p = 0.50 is inconsistent with Prospect Theory which assumes underweighting of medium probability events (see also Abdellaoui, Bleichrodt, & L'Haridon, 2008). However, previous research in decisions from experience has found that the relative frequency of extreme events (as compared to non-extremes) is overestimated (see Madan et al, 2014).…”

Section: Potential Explanations and Future Directionsmentioning

confidence: 88%

Magnitude and incentives: revisiting the overweighting of extreme events in risky decisions from experience

2017

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Recent experimental evidence in experiencebased decision-making suggests that people are more risk seeking in the gains domain relative to the losses domain. This critical result is at odds with the standard reflection effect observed in description-based choice and explained by Prospect Theory. The so-called reversed-reflection effect has been predicated on the extreme-outcome rule, which suggests that memory biases affect risky choice from experience. To test the general plausibility of the rule, we conducted two experiments examining how the magnitude of prospective outcomes impacts risk preferences. We found that while the reversed-reflection effect was present with small-magnitude payoffs, using payoffs of larger magnitude brought participants' behavior back in line with the standard reflection effect. Our results suggest that risk preferences in experience-based decision-making are not only affected by the relative extremeness but also by the absolute extremeness of past events.

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“…Firstly, losses will be ascribed to a higher impact on the value function than nominally identical gains. Empirical evidence, mostly from experimental studies, shows that loss aversion varies around a factor of roughly two (Abdellaoui et al 2008;Harrison and Rutstro 2008;Rieger et al 2011;Tversky and Kahneman 1992). Secondly, the reference point is decisive for the risk attitudes of decision makers.…”

Section: The Relevance Of the Reference Pointmentioning

confidence: 99%

Prospect theory, mitigation and adaptation to climate change

Osberghaus

2016

Journal of Risk Research

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Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. AbstractClimate change is one of the most pressing challenges in current environmental policy. Appropriate policies intended to stimulate efficient adaptation and mitigation should not exclusively rely on the assumption of the homo oeconomicus, but take advantage of well-researched alternative behavioural patterns. Prospect theory provides a number of climate-relevant insights, such as the notion that evaluations of outcomes are reference dependent, and the relevance of perceived certainty of outcomes. This paper systematically reviews what prospect theory can offer to analyse mitigation and adaptation. It is shown that accounting for reference dependence and certainty effects contributes to a better understanding of some well-known puzzles in the climate debate, including (but not limited to) the different uptake of mitigation and adaptation amongst individuals and nations, the role of technical vs. financial adaptation, and the apparent preference for hard protection measures in coastal adaptation. Finally, concrete possibilities for empirical research on these effects are proposed.

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A tractable method to measure utility and loss aversion under prospect theory

Abstract: Prospect theory, Utility measurement, Loss aversion, D81,

Cited by 279 publications

References 40 publications

Probability weighting and the ‘level’ and ‘spacing’ of outcomes: An experimental study over losses

Probability weighting and the ‘level’ and ‘spacing’ of outcomes: An experimental study over losses

Magnitude and incentives: revisiting the overweighting of extreme events in risky decisions from experience

Prospect theory, mitigation and adaptation to climate change

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