Prospect Theory

Chiu, Andrew; Wu, George

doi:10.1002/9780470400531.eorms0687

Cited by 9 publications

(5 citation statements)

References 23 publications

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“…This principle also applies to probability assessments. Chiu and Wu (2010) make the fairly intuitive observation (backed by empirical evidence) that increasing one's chances of winning a prize from, say, 0% to 1% or 5% to 6%, each seem more consequential than increasing one's chances from 36% to 37%; and, among the former two, 0% to 1% seems particularly consequential (we return to this below).…”

Section: Diminishing Sensitivity and Diminishing Marginal Benefitsmentioning

confidence: 92%

Re-Examining the Functional Form of the Certainty Effect in Deterrence Theory

Loughran

Pogarsky²,

Piquero

et al. 2011

Justice Quarterly

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In this paper we explore the functional form of the risk-certainty effect for deterrence. Using a sample of serious youth offenders, we first estimate a simple linear model of the relationship between the perceived certainty of punishment and self-reported offending. Consistent with previous literature we find evidence of a moderate deterrent effect. We then examined whether, consistent with a linear model, the effect of perceived risk is truly constant at different ranges of the risk continuum. Estimating a nonparametric regression model that makes no a priori assumption about the functional form of the model but allows the data itself to yield the appropriate functional form, we found marked departures from linearity. Our examination showed evidence of both a tipping effect, whereby perceived risk deters only when it reaches a certain threshold (between an estimated risk of .3 and .4) and a substantially accelerated deterrent effect for individuals at the high end of the risk continuum. Perceived sanction threats did, however, have a non-trivial deterrent effect within the mid-range of risk. The implications of our findings for both theory and additional research are discussed.

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Section: Diminishing Sensitivity and Diminishing Marginal Benefitsmentioning

confidence: 92%

Re-Examining the Functional Form of the Certainty Effect in Deterrence Theory

Loughran

Pogarsky²,

Piquero

et al. 2011

Justice Quarterly

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show abstract

“…PT has found application in various domains, such as mental accounting in behavioral economics and modeling driver compliance or route choice in transportation ( 46 ). PT was introduced by Kahneman and Tversky, who observed that risk decisions are often influenced by subjective considerations that, in turn, may have been shaped by language expressions, leading to different preferences in different scenarios ( 47 ).…”

Section: Methods and Datamentioning

confidence: 99%

Prediction of Car-Following Behavior of Autonomous Vehicle and Human-Driven Vehicle Based on Drivers’ Memory and Cooperation With Lead Vehicle

Adewale,

Lee

2023

Transportation Research Record: Journal of the Transportation R

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Autonomous vehicles (AVs) have moved from hype to reality as the penetration and acceptance rate continues to increase. As they are slowly integrated into traffic with human-driven vehicles (HDVs), it is necessary to predict the car-following behaviors of AVs and HDVs for better control of AV–HDV mixed traffic. This study extends a data-driven car-following model to incorporate drivers’ memory, and cooperation with the lead vehicle. The model predicts the following vehicle’s speed in AV–HDV mixed traffic. The effect of drivers’ cooperation on car-following behavior was modeled using prospect theory (PT), whereas the driver’s memory was incorporated using the memory cell of a long short-term memory (LSTM) neural network. This extended car-following model is called the “PT-LSTM model.” Real-world vehicle trajectories of HDVs and AVs in the Waymo AV Open Dataset were used to calibrate and validate the PT-LSTM model. The PT-LSTM model demonstrated higher accuracy compared with the LSTM model that did not consider drivers’ cooperation, the multiple layer perceptron model, Gipps’ model, and the intelligent driver model that incorporated PT. The importance of variables in different time steps in the PT-LSTM model was also evaluated using SHapley Additive exPlanations (SHAP). The SHAP results showed that AV followers were more likely to cooperate with the lead HDV, whereas HDV followers were more likely to cooperate with the lead AV than the lead HDV. Thus, this study underscores the importance of considering drivers’ memory and cooperation with the lead vehicle for the prediction of car-following behaviors in AV–HDV mixed traffic.

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“…One fundamental concept of Loss aversion, a concept within prospect theory, describes the inclination of individuals to prioritize avoiding losses more than gaining equivalent gains. Losing has a more significant psychological impact than winning, potentially leading to risk-averse behavior (Chiu, A., & Wu, G. (2018).…”

Section: Prospect Theory's Fundamental Ideas and Tenets Includementioning

confidence: 99%

Post COVID-19 Analysis of Conservatism Effect Bias on Individual Investors of the KMI-30 Index at Pakistan Stock Exchange

Gul,

Rahim

2023

TRT

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This study examines how conservative bias affected Pakistan Stock Exchange KMI-30 index investors after COVID-19. The main goal is to assess conservative bias in Pakistani stock market decision-making. Data from 162 respondents was carefully collected and analyzed using logistic regression, association testing, descriptive statistics, and correlation analysis. The study illuminates the impact of conservative bias on Pakistan's stock market investment selections. Both male and female investors react similarly to conservative bias, indicating that gender does not greatly change its effects. Conservative bias is more common in highly educated people, especially those with graduate and doctoral degrees. Younger investors (18-25) are less susceptible than 26-30-year-olds. Investors with one to three years of experience are more conservative, while those with less than a year or over three years are less vulnerable. Marital status barely affects financial prejudice. These findings emphasize the importance of demographic and experience characteristics in investment strategies and financial advice. The study underlines that good investment requires understanding psychological aspects affecting investor behavior, not just numbers. Understanding the human aspect in investment decision-making can help financial advisers, and regulators tailor advice and regulations to the varying needs and vulnerabilities of different investor groups, creating a more informed and resilient investing community.

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Prospect Theory

Cited by 9 publications

References 23 publications

Re-Examining the Functional Form of the Certainty Effect in Deterrence Theory

Re-Examining the Functional Form of the Certainty Effect in Deterrence Theory

Prediction of Car-Following Behavior of Autonomous Vehicle and Human-Driven Vehicle Based on Drivers’ Memory and Cooperation With Lead Vehicle

Post COVID-19 Analysis of Conservatism Effect Bias on Individual Investors of the KMI-30 Index at Pakistan Stock Exchange

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