Modeling Gain-Loss Asymmetries in Risky Choice: The Critical Role of Probability Weighting

Thorsten Pachur, David Kellen

Research output: Chapter in Book/Report/Conference proceedingConference contribution

9 Scopus citations

Abstract

A robust empirical regularity in decision making is that the negative consequences of an option (i.e., losses) often have a stronger impact on people's behavior than the positive consequences (i.e., gains). One common explanation for such a gain-loss asymmetry is loss aversion. To model loss aversion in risky decisions, prospect theory (Kahneman & Tversky, 1979) assumes a kinked value function (which translates objective consequences into subjective utilities), with a steeper curvature for losses than for gains. We highlight, however, that the prospect theory framework offers many alternative ways to model gain-loss asymmetries (e.g., via the weighting function, which translates objective probabilities into subjective decision weights; or via the choice rule). Our goal is to systematically test these alternative models against each other. In a reanalysis of data by Glöckner and Pachur (2012), we show that people's risky decisions are best accounted for by a version of prospect theory that has a more elevated weighting function for losses than for gains but the same value function for both domains. These results contradict the common assumption that a kinked value function is necessary to model risky choices and point to the neglected role of people's differential probability weighting in the gain and loss domains.

Original languageEnglish (US)
Title of host publicationCooperative Minds
Subtitle of host publicationSocial Interaction and Group Dynamics - Proceedings of the 35th Annual Meeting of the Cognitive Science Society, CogSci 2013
EditorsMarkus Knauff, Natalie Sebanz, Michael Pauen, Ipke Wachsmuth
PublisherThe Cognitive Science Society
Pages3205-3210
Number of pages6
ISBN (Electronic)9780976831891
StatePublished - 2013
Externally publishedYes
Event35th Annual Meeting of the Cognitive Science Society - Cooperative Minds: Social Interaction and Group Dynamics, CogSci 2013 - Berlin, Germany
Duration: Jul 31 2013Aug 3 2013

Publication series

NameCooperative Minds: Social Interaction and Group Dynamics - Proceedings of the 35th Annual Meeting of the Cognitive Science Society, CogSci 2013

Conference

Conference35th Annual Meeting of the Cognitive Science Society - Cooperative Minds: Social Interaction and Group Dynamics, CogSci 2013
Country/TerritoryGermany
CityBerlin
Period7/31/138/3/13

Keywords

  • cognitive modeling
  • loss aversion
  • probability weighting
  • prospect theory
  • risky choice

ASJC Scopus subject areas

  • Artificial Intelligence
  • Computer Science Applications
  • Human-Computer Interaction
  • Cognitive Neuroscience

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