The effects of losses and event splitting on the Allais paradox
Journal Title: Judgment and Decision Making - Year 2007, Vol 2, Issue 2
Abstract
The Allais Paradox, or common consequence effect, has been a standard challenge to normative theories of risky choice since its proposal over 60 years ago. However, neither its causes nor the conditions necessary to create the effect are well understood. Two experiments test the effects of losses and event splitting on the Allais Paradox. Experiment 1 found that the Allais Paradox occurs for both gain and mixed gambles and is reflected for loss gambles produced by reflection across the origin. Experiment 2 found that the Allais Paradox is eliminated by splitting the outcomes even when the probabilities used do not increase the salience of the common consequence. The results of Experiment 1 are consistent with Cumulative Prospect Theory, the current leading theory of risky choice. However, the results of Experiment 2 are problematic for Cumulative Prospect Theory and suggest that alternate explanations for the Allais Paradox must be sought.
Authors and Affiliations
Bethany Weber
Keywords
Related Articles
- EP ID EP677574
- DOI -
- Views 195
- Downloads 0
Anti-social motives explain increased risk aversion for others in decisions from experience
When deciding for others based on explicitly described odds and outcomes, people often have different risk preferences for others than for themselves. In two pre-registered experiments, we examine risk preference for oth...
Lay intuitions about overall evaluations of experiences
Previous research has identified important determinants of overall evaluations for experiences lived across time. By means of a novel guessing task, I study what decision-makers themselves consider important. As Informan...
High-stakes hedges are misunderstood too. A commentary on: “Valuing bets and hedges: Implications for the construct of risk preference”
Frederick, Levis, Malliaris & Meyer (2018) report a package of laboratory studies where participants underestimate the value of “hedges”: Risky bets which cancel out the risk of another presently-held bet. However, it mi...
Herbert Simon’s spell on judgment and decision making
How many judgment and decision making (JDM) researchers have not claimed to be building on Herbert Simon’s work? We identify two of Simon’s goals for JDM research: He sought to understand people’s decision processes—the...
Validation of the Domain-Specific Risk-Taking Scale in Chinese college students
Using college student samples, two studies were conducted to validate the Chinese version of the Domain-Specific Risk-Taking (DOSPERT) Scale. The results replicated important findings reported by Weber et al. (2002) in t...