Journal•ISSN: 0895-5646
Journal of Risk and Uncertainty
Springer Science+Business Media
About: Journal of Risk and Uncertainty is an academic journal published by Springer Science+Business Media. The journal publishes majorly in the area(s): Expected utility hypothesis & Risk aversion. It has an ISSN identifier of 0895-5646. Over the lifetime, 880 publications have been published receiving 81331 citations.
Topics: Expected utility hypothesis, Risk aversion, Prospect theory, Ambiguity, Subjective expected utility
Papers published on a yearly basis
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TL;DR: Cumulative prospect theory as discussed by the authors applies to uncertain as well as to risky prospects with any number of outcomes, and it allows different weighting functions for gains and for losses, and two principles, diminishing sensitivity and loss aversion, are invoked to explain the characteristic curvature of the value function and the weighting function.
Abstract: We develop a new version of prospect theory that employs cumulative rather than separable decision weights and extends the theory in several respects. This version, called cumulative prospect theory, applies to uncertain as well as to risky prospects with any number of outcomes, and it allows different weighting functions for gains and for losses. Two principles, diminishing sensitivity and loss aversion, are invoked to explain the characteristic curvature of the value function and the weighting functions. A review of the experimental evidence and the results of a new experiment confirm a distinctive fourfold pattern of risk attitudes: risk aversion for gains and risk seeking for losses of high probability; risk seeking for gains and risk aversion for losses of low probability. Expected utility theory reigned for several decades as the dominant normative and descriptive model of decision making under uncertainty, but it has come under serious question in recent years. There is now general agreement that the theory does not provide an adequate description of individual choice: a substantial body of evidence shows that decision makers systematically violate its basic tenets. Many alternative models have been proposed in response to this empirical challenge (for reviews, see Camerer, 1989; Fishburn, 1988; Machina, 1987). Some time ago we presented a model of choice, called prospect theory, which explained the major violations of expected utility theory in choices between risky prospects with a small number of outcomes (Kahneman and Tversky, 1979; Tversky and Kahneman, 1986). The key elements of this theory are 1) a value function that is concave for gains, convex for losses, and steeper for losses than for gains,
13,433 citations
TL;DR: A series of decision-making experiments showed that individuals disproportionately stick with the status quo as mentioned in this paper, that is, doing nothing or maintaining one's current or previous decision, and that this bias is substantial in important real decisions.
Abstract: Most real decisions, unlike those of economics texts, have a status quo alternative—that is, doing nothing or maintaining one's current or previous decision. A series of decision-making experiments shows that individuals disproportionately stick with the status quo. Data on the selections of health plans and retirement programs by faculty members reveal that the status quo bias is substantial in important real decisions. Economics, psychology, and decision theory provide possible explanations for this bias. Applications are discussed ranging from marketing techniques, to industrial organization, to the advance of science.
4,817 citations
TL;DR: In this paper, the authors review 74 experiments with no, low, or high performance-based financial incentives and find that the modal result has no effect on mean performance, and that higher incentive does improve performance often, typically judgment tasks that are responsive to better effort.
Abstract: We review 74 experiments with no, low, or high performance-based financial incentives. The modal result has no effect on mean performance (though variance is usually reduced by higher payment). Higher incentive does improve performance often, typically judgment tasks that are responsive to better effort. Incentives also reduce “presentation” effects (e.g., generosity and risk-seeking). Incentive effects are comparable to effects of other variables, particularly “cognitive capital” and task “production” demands, and interact with those variables, so a narrow-minded focus on incentives alone is misguided. We also note that no replicated study has made rationality violations disappear purely by raising incentives.
1,938 citations
TL;DR: In subjective expected utility (SEU), the decision weights people attach to events are their beliefs about the likelihood of events as discussed by the authors, and it has been shown that people prefer to bet on events they know more about.
Abstract: In subjective expected utility (SEU), the decision weights people attach to events are their beliefs about the likelihood of events. Much empirical evidence, inspired by Ellsberg (1961) and others, shows that people prefer to bet on events they know more about, even when their beliefs are held constant. (They are averse to ambiguity, or uncertainty about probability.) We review evidence, recent theoretical explanations, and applications of research on ambiguity and SEU.
1,702 citations
TL;DR: This paper investigated the relation between judgments of probability and preferences between bets and found that people prefer betting on their own judgment over an equiprobable chance event when they consider themselves knowledgeable, but not otherwise.
Abstract: We investigate the relation between judgments of probability and preferences between bets. A series of experiments provides support for the competence hypothesis that people prefer betting on their own judgment over an equiprobable chance event when they consider themselves knowledgeable, but not otherwise. They even pay a significant premium to bet on their judgments. These data connot be explained by aversion to ambiguity, because judgmental probabilities are more ambiguous than chance events. We interpret the results in terms of the attribution of credit and blame. The possibility of inferring beliefs from preferences is questioned.1
1,584 citations