Exaggerated Risk: Prospect Theory and Probability Weighting in Risky Choice

Journal article


Kusev, P., van Schaik, P., Ayton, P., Dent, J. and Chater, N. (2016). Exaggerated Risk: Prospect Theory and Probability Weighting in Risky Choice. Journal of Experimental Psychology: Learning Memory and Cognition. 35 (6), pp. 1487-1505. https://doi.org/10.1037/a0017039
AuthorsKusev, P., van Schaik, P., Ayton, P., Dent, J. and Chater, N.
Abstract

In 5 experiments, we studied precautionary decisions in which participants decided whether or not to buy insurance with specified cost against an undesirable event with specified probability and cost. We compared the risks taken for precautionary decisions with those taken for equivalent monetary gambles. Fitting these data to Tversky and Kahneman’s (1992) prospect theory, we found that the weighting function required to model precautionary decisions differed from that required for monetary gambles. This result indicates a failure of the descriptive invariance axiom of expected utility theory. For precautionary decisions, people overweighted small, medium-sized, and moderately large probabilities—they exaggerated risks. This effect is not anticipated by prospect theory or experience-based decision research (Hertwig, Barron, Weber, & Erev, 2004). We found evidence that exaggerated risk is caused by the accessibility of events in memory: The weighting function varies as a function of the accessibility of events. This suggests that people’s experiences of events leak into decisions even when risk information is explicitly provided. Our findings highlight a need to investigate how variation in decision content produces variation in preferences for risk.

Year2016
JournalJournal of Experimental Psychology: Learning Memory and Cognition
Journal citation35 (6), pp. 1487-1505
PublisherAmerican Psychological Association
ISSN1939-1285
Digital Object Identifier (DOI)https://doi.org/10.1037/a0017039
Web address (URL)http://www.scopus.com/inward/record.url?eid=2-s2.0-71649111215&partnerID=MN8TOARS
Publication dates
Online01 Jan 2009
Publication process dates
Deposited31 Aug 2022
Accepted author manuscript
License
File Access Level
Open
ISBN02787393
Permalink -

https://openresearch.lsbu.ac.uk/item/91q9q

Download files


Accepted author manuscript
PKusev_2007-0722RR.pdf
License: CC BY 4.0
File access level: Open

  • 1
    total views
  • 1
    total downloads
  • 0
    views this month
  • 0
    downloads this month

Export as

Related outputs

How false feedback influences decision‐makers' risk preferences
Kusev, P., van Schaik, P., Teal, J., Martin, R., Hall, L. and Johansson, P. (2022). How false feedback influences decision‐makers' risk preferences. Journal of Behavioral Decision Making. https://doi.org/10.1002/bdm.2278
Problem Gambling ‘Fuelled on the Fly’
Teal, J., Kusev, P., Heilman, R., Martin, R., Passanisi, A. and Pace, U. (2021). Problem Gambling ‘Fuelled on the Fly’. International Journal of Environmental Research and Public Health. 18 (16), p. 8607. https://doi.org/10.3390/ijerph18168607
Are Impulsive Decisions Always Irrational? An Experimental Investigation of Impulsive Decisions in the Domains of Gains and Losses
Heilman, R.M., Kusev, P., Miclea, M., Teal, J., Martin, R., Passanisi, A. and Pace, U. (2021). Are Impulsive Decisions Always Irrational? An Experimental Investigation of Impulsive Decisions in the Domains of Gains and Losses. International Journal of Environmental Research and Public Health. 18 (16), p. 8518. https://doi.org/10.3390/ijerph18168518
Moral Decision Making: From Bentham to Veil of Ignorance via Perspective Taking Accessibility
Martin, R., Kusev, P., Teal, J., Baranova, V. and Rigal, B. (2021). Moral Decision Making: From Bentham to Veil of Ignorance via Perspective Taking Accessibility. Behavioral Sciences. 11 (5), p. 66. https://doi.org/10.3390/bs11050066
Gambling Disorders Among Young Women Regular Gamblers: The Unique and Common Contribution of Executive Thinking Style and Mindfulness
Pace, U., Kusev, P., D'Urso, G., Ruggieri, S. and Passanisi, A. (2021). Gambling Disorders Among Young Women Regular Gamblers: The Unique and Common Contribution of Executive Thinking Style and Mindfulness. Journal of Gambling Studies. 38, pp. 833-841. https://doi.org/10.1007/s10899-021-10062-x
Autonomous vehicles: How perspective-taking accessibility alters moral judgments and consumer purchasing behavior
Martin, R., Kusev P. and van Schaik, P. (2021). Autonomous vehicles: How perspective-taking accessibility alters moral judgments and consumer purchasing behavior. Cognition. 212, p. 104666. https://doi.org/10.1016/j.cognition.2021.104666
How decision-makers’ sense and state of power induce propensity to take financial risks
Sekścińska, K., Rudzinska-Wojciechowska, J. and Kusev, P. (2021). How decision-makers’ sense and state of power induce propensity to take financial risks. Journal of Economic Psychology. 89, p. 102474. https://doi.org/10.1016/j.joep.2021.102474
Preference reversals during risk elicitation.
Kusev, P., van Schaik, P., Martin, R., Hall, L. and Johansson, P. (2020). Preference reversals during risk elicitation. Journal of Experimental Psychology: General. 149 (3), pp. 585-589. https://doi.org/10.1037/xge0000655
Personal Values Associated with Prosocial Decisions
Heilman, R.M. and Kusev, P. (2020). Personal Values Associated with Prosocial Decisions. Behavioral Sciences. 10 (4), p. 77. https://doi.org/10.3390/bs10040077
Choice under risk: How occupation influences preferences
Hill, T., Kusev, P. and van Schaik, P. (2019). Choice under risk: How occupation influences preferences. Frontiers in Psychology. https://doi.org/10.3389/fpsyg.2019.02003
Flexible emotion regulation: How situational demands and individual differences influence the effectiveness of regulatory strategies
Kobylińska, D. and Kusev, P. (2019). Flexible emotion regulation: How situational demands and individual differences influence the effectiveness of regulatory strategies. Frontiers in Psychology. https://doi.org/10.3389/fpsyg.2019.00072
From gloom to doom: Financial loss and negative affect prime risk averse preferences
Aldrovandi, S., Kusev, P., Hill, T. and Vlaev, I. (2019). From gloom to doom: Financial loss and negative affect prime risk averse preferences. Current Psychology. 40, pp. 5851-5862. https://doi.org/10.1007/s12144-019-00507-3
The use of information in online healthcare provider choice
van Schaik, P., Thornhill, E., Davies, M., Flynn, D. and Kusev, P. (2019). The use of information in online healthcare provider choice. International Journal of Human Computer Studies. 128, pp. 41-60. https://doi.org/10.1016/j.ijhcs.2019.01.005
Adaptive Anchoring Model: How Static and Dynamic Presentations of Time Series Influence Judgments and Predictions
Kusev, P., van Schaik, P., Tsaneva-Atanasova, K., Juliusson, A. and Chater, N. (2017). Adaptive Anchoring Model: How Static and Dynamic Presentations of Time Series Influence Judgments and Predictions. Cognitive Science. 42 (1), pp. 77-102. https://doi.org/10.1111/cogs.12476
Risk perceptions of cyber-security and precautionary behaviour
van Schaik, P., Jeske, D., Onibokun, J., Coventry, L., Jansen, J. and Kusev, P. (2017). Risk perceptions of cyber-security and precautionary behaviour. Computers in Human Behavior. 75, pp. 547-559. https://doi.org/10.1016/j.chb.2017.05.038
Commentary: The social dilemma of autonomous vehicles
Martin, R., Kusev, I., Cooke, A.J., Baranova, V., Van Schaik, P. and Kusev, P. (2017). Commentary: The social dilemma of autonomous vehicles. Frontiers in Psychology. https://doi.org/10.3389/fpsyg.2017.00808
Understanding risky behavior: The influence of cognitive, emotional and hormonal factors on decision-making under risk
Kusev, P., Purser, H., Heilman, R., Cooke, A.J., Van Schaik, P., Baranova, V., Martin, R. and Ayton, P. (2017). Understanding risky behavior: The influence of cognitive, emotional and hormonal factors on decision-making under risk. Frontiers in Psychology. https://doi.org/10.3389/fpsyg.2017.00102
Security and privacy in online social networking: Risk perceptions and precautionary behaviour
van Schaik, P., Jansen, J., Onibokun, J., Camp, J. and Kusev, P. (2017). Security and privacy in online social networking: Risk perceptions and precautionary behaviour. Computers in Human Behavior. 78, pp. 283-297. https://doi.org/10.1016/j.chb.2017.10.007
Context Moderates Priming Effects on Financial Risk Taking
Aldrovandi, S., Kusev, P., Hill, T. and Vlaev, I. (2017). Context Moderates Priming Effects on Financial Risk Taking. Risks. 5 (1), p. 18. https://doi.org/10.3390/risks5010018
The gender pay gap: Can behavioral economics provide useful insights?
Heilman, R.M. and Kusev, P. (2017). The gender pay gap: Can behavioral economics provide useful insights? Frontiers in Psychology. https://doi.org/10.3389/fpsyg.2017.00095
Judging the morality of utilitarian actions: How poor utilitarian accessibility makes judges irrational
Kusev, P., van Schaik, P., Alzahrani, S., Lonigro, S. and Purser, H. (2016). Judging the morality of utilitarian actions: How poor utilitarian accessibility makes judges irrational. Psychonomic Bulletin and Review. 23, pp. 1961-1967. https://doi.org/10.3758/s13423-016-1029-2
Retrospective evaluations of sequences: Testing the predictions of a memory-based analysis
Aldrovandi, S., Poirier, M., Kusev, P. and Ayton, P. (2015). Retrospective evaluations of sequences: Testing the predictions of a memory-based analysis. Experimental Psychology. 62 (5). https://doi.org/10.1027/1618-3169/a000301
The cognitive economy: The probabilistic turn in psychology and human cognition
Kusev, P. and Van Schaik, P. (2013). The cognitive economy: The probabilistic turn in psychology and human cognition. Behavioral and Brain Sciences. 36 (3), pp. 294-295. https://doi.org/10.1017/s0140525x12003019
Modeling judgment of sequentially presented categories using weighting and sampling without replacement
Kusev, P., Tsaneva-Atanasova, K., van Schaik, P. and Chater, N. (2012). Modeling judgment of sequentially presented categories using weighting and sampling without replacement. Behavior Research Methods. 44, pp. 1129-1134. https://doi.org/10.3758/s13428-012-0218-9
Preferences induced by accessibility: Evidence from priming
Kusev, P., van Schaik, P. and Aldrovandi, S. (2012). Preferences induced by accessibility: Evidence from priming. Journal of Neuroscience, Psychology, and Economics. 5 (4), pp. 250-258. https://doi.org/10.1037/a0030289
Now I like it, now I don’t
Aldrovandi, S., Poirier, M., Kusev, P., Heussen, D. and Ayton, P. (2011). Now I like it, now I don’t. Proceedings of the Annual Meeting of the Cognitive Science Society. 01 Jan 2009
Judgments Relative to Patterns: How Temporal Sequence Patterns Affect Judgments and Memory
Kusev, P., Ayton, P., van Schaik, P., Tsaneva-Atanasova, K., Stewart, N. and Chater, N. (2011). Judgments Relative to Patterns: How Temporal Sequence Patterns Affect Judgments and Memory. Journal of Experimental Psychology: Human Perception and Performance. 37 (6), pp. 1874-1886. https://doi.org/10.1037/a0025589
Preferences under risk: Content-dependent behavior and psychological processing
Kusev, P. and van Schaik, P. (2011). Preferences under risk: Content-dependent behavior and psychological processing. Frontiers in Psychology. https://doi.org/10.3389/fpsyg.2011.00269
Human Preferences and Risky Choices
van Shaik, P., Kusev, P. and Juliusson, A. (2011). Human Preferences and Risky Choices. Frontiers in Psychology. https://doi.org/10.3389/fpsyg.2011.00333
Domain effects and financial risk attitudes
Vlaev, I., Kusev, P., Stewart, N., Aldrovandi, S. and Chater, N. (2010). Domain effects and financial risk attitudes. Risk Analysis. 30 (9), pp. 1374-1386. https://doi.org/10.1111/j.1539-6924.2010.01433.x
Explanations of comparative facts
Silvio Aldrovandi, James A. Hampton, Daniel Heussen and Kusev, P. (2009). Explanations of comparative facts. Proceedings of the Annual Meeting of the Cognitive Science Society. 01 Jan 2009
Deciding about Risky Prospects: A Psychological Descriptive Approach
Kusev, P. and van Schaik, P. (2007). Deciding about Risky Prospects: A Psychological Descriptive Approach. in: Psychology of Decision Making in Education, Behavior & High Risk Situations