Decision-making: The influence of probability preference, variance preference and expected value on strategy in gambling

Relative importance of probabilities and payoffs in risk taking.

“…For the two-outcome gamble discussed earlier, variance = P w P L ($w -$ L ) 2 . A person's "utility for risk" often has been equated with his preference for variance (Allais, 1953;Coombs & Pruitt, 1960;Kogan & Wallach, 1967;Royden, Suppes, & Walsh, 1959;Slovic, 1962;Van der Meer, 1963).…”

Importance of variance preferences in gambling decisions.

“…For a gamble that offers probability p to win A dollars and probability q to win B dollars, variance = pq(A -B) 2 . A person's "utility for risk" has often been conceptualized in terms of his preference for variance (Coombs & Pruitt, 1960;Kogan & Wallach, 1967;Royden, Suppes, & Walsh, 1959;Slovic, 1962;Van der Meer, 1963).…”

“…Although the first experimental study of variance preferences (Edwards, 1954) concluded that they were less important than probability preferences, studies done since have been interpreted as indicating that variance has rather strong effects (Coombs & Pruitt, 1960;Davidson & Marschak, 1959;Lichtenstein, 1965;Littig, 1962;Royden, Suppes, & Walsh, 1959;Van der Meer, 1963). Edwards (1961) noted .that some decision theorists felt that "the variance of a bet is as important as its SEU in determining its attractiveness [p.…”

A polynomial theory of risk

“…There are several decision making models in the literature in which risk is an important variable (Royden et al 1959;Coombs and Pruitt 1960;Pruitt 1962;Van der Meer 1963;Coombs and Meyer 1969;Coombs and Huang 1970b). In order to test these models, risk must be examined in more detail; otherwise, the interpretation of discrepant experimental results will not discriminate between incorrect assumptions about the nature of risk and incorrect assumptions about the decision process.…”