Multiattribute Risky Choice Behavior: The Editing of Complex Prospects.

Payne, John W.; Laughhunn, Dan J.; Crum, Roy L.

doi:10.21236/ada111656

Cited by 11 publications

(18 citation statements)

References 3 publications

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“…Previous demonstrations have focused on choices among pure losses, where the convexity of the prospect theory value function in losses produces risk-seeking behavior (Fischer et al 1986, Payne et al 1984. Our demonstrations of risk proneness include combinations of positive and negative outcomes that are not explained by a basic reference dependence account.…”

Section: Discussionmentioning

confidence: 95%

Betting Your Favorite to Win: Costly Reluctance to Hedge Desired Outcomes

2018

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We examined whether people reduce the impact of negative outcomes through emotional hedging-betting against the occurrence of desired outcomes. We found substantial reluctance to bet against the success of preferred U.S. presidential candidates and Major League Baseball, National Football League, National Collegiate Athletic Association (NCAA) basketball, and NCAA hockey teams. This reluctance was not attributable to optimism or a general aversion to hedging. Reluctance to hedge desired outcomes stemmed from identity signaling, a desire to preserve an important aspect of the bettor's identity. Reluctance to hedge occurred when the diagnostic cost of the negative self-signal that hedging would produce outweighed the pecuniary rewards associated with hedging. Participants readily accepted hedges and pure gambles with no diagnostic costs. They also more readily accepted hedges with diagnostic costs when the pecuniary rewards associated with those hedges were greater. Reluctance to hedge identity-relevant outcomes produced two anomalies in decision making, risk seeking and dominance violations. More than 45% of NCAA fans in Studies 5 and 6, for instance, turned down a "free" real $5 bet against their team. The results elucidate anomalous decisions in which people exhibit disloyalty aversion, forgoing personal rewards that would conflict with their loyalties and commitments to others, beliefs, and ideals.

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Section: Discussionmentioning

confidence: 95%

Betting Your Favorite to Win: Costly Reluctance to Hedge Desired Outcomes

2018

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“…The larger disutility of a loss compared to the utility of an equivalent gain forces decision makers to weight losses more than gains. Many studies confirm this hypothesis (Payne et al, 1984; Arkes & Blumer, 1985; Tversky & Kahneman, 1991; Shefrin & Statman, 1985). We additionally introduce Hypothesis H2, in accordance with Odean's (1999) study, which argues that investors might sell winners and hold losers when they expect the losers to outperform the winners in the future:…”

Section: Hypothesesmentioning

confidence: 85%

“…Up to now, most empirical research has been to test and verify prospect theory. To illustrate; in Payne, Laughhunn and Crum (1984) study about the multi‐attribute risky choice, behavior of 128 professional U.S. firm managers supports the reference point characteristic of the prospect theory. Payne et al find that the managers reveal risk averse behavior for prospects involving only gains and risk‐taking behavior for prospects involving only losses.…”

Section: Introductionmentioning

confidence: 84%

Does the prospect theory also hold for power traders? Empirical evidence from a Swiss energy company

Kalayci

Basdas

2009

Rev Financ Econ

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Currently, a great deal of empirical research has been done to test and verify Kahneman and Tversky's (1979) prospect theory. Nevertheless, the research only addresses private or institutional investors in the financial industry and has neglected specific tests in the real sector. In this paper, our goal is to examine whether the implications of prospect theory and the house money effect also hold for the power traders in the energy sector. The results show that the reflection and house money effects do not hold. Our results indicate the possible influence of the recent global crisis on prospect theory.

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“…Also empirical studies for decision under risk relied on the attribute-specific evaluation. See, for example, Payne et al (1984) who study managers' choices among capital budget proposals involving cash flows at two points in time, and Fischer et al (1986) who consider both risky, multiperiod cash flows and risky job alternatives. Both studies use attribute-specific reference points.…”

Section: Introductionmentioning

confidence: 99%

Additive Utility in Prospect Theory

2009

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Prospect theory is currently the main descriptive theory of decision under uncertainty. It generalizes expected utility by introducing nonlinear decision weighting and loss aversion. A difficulty in the study of multiattribute utility under prospect theory is to determine when an attribute yields a gain or a loss. One possibility, adopted in the theoretical literature on multiattribute utility under prospect theory, is to assume that a decision maker determines whether the complete outcome is a gain or a loss. In this holistic evaluation, decision weighting and loss aversion are general and attribute-independent. Another possibility, more common in the empirical literature, is to assume that a decision maker has a reference point for each attribute. We give preference foundations for this attribute-specific evaluation where decision weighting and loss aversion are depending on the attributes.additive utility, prospect theory, decision weighting, loss aversion

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Multiattribute Risky Choice Behavior: The Editing of Complex Prospects.

Cited by 11 publications

References 3 publications

Betting Your Favorite to Win: Costly Reluctance to Hedge Desired Outcomes

Betting Your Favorite to Win: Costly Reluctance to Hedge Desired Outcomes

Does the prospect theory also hold for power traders? Empirical evidence from a Swiss energy company

Additive Utility in Prospect Theory

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