February 2019
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57 Reads
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1 Citation
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February 2019
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57 Reads
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1 Citation
February 2019
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1,297 Reads
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427 Citations
This book presents the definitive exposition of ‘prospect theory’, a compelling alternative to the classical utility theory of choice. Building on the 1982 volume, Judgement Under Uncertainty, this book brings together seminal papers on prospect theory from economists, decision theorists, and psychologists, including the work of the late Amos Tversky, whose contributions are collected here for the first time. While remaining within a rational choice framework, prospect theory delivers more accurate, empirically verified predictions in key test cases, as well as helping to explain many complex, real-world puzzles. In this volume, it is brought to bear on phenomena as diverse as the principles of legal compensation, the equity premium puzzle in financial markets, and the number of hours that New York cab drivers choose to drive on rainy days. Theoretically elegant and empirically robust, this volume shows how prospect theory has matured into a new science of decision making.
February 2019
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283 Reads
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98 Citations
January 2016
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1,958 Reads
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1,177 Citations
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 J Risk Uncertain 2:61–104, 1989; Fishburn Nonlinear preference and utility theory. The Johns Hopkins University Press, Baltimore, 1988; Machina Econ Perspect 1(1):121–154, 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 Econometrica 47:263–291, 1979; Tversky and Kahneman J Bus 59(4):S251–S278, 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, and (2) a nonlinear transformation of the probability scale, which overweights small probabilities and underweights moderate and high probabilities. In an important later development, several authors (Quiggin J Econ Behav Organ 3, 323–343; Schmeidler Econometrica 57:571–587, 1989; Yaari Econometrica 55:95–115, 1987; Weymark Math Soc Sci 1:409–430, 1981) have advanced a new representation, called the rank-dependent or the cumulative functional, that transforms cumulative rather than individual probabilities. This article presents a new version of prospect theory that incorporates the cumulative functional and extends the theory to uncertain as well to risky prospects with any number of outcomes. The resulting model, called cumulative prospect theory, combines some of the attractive features of both developments (see also Luce and Fishburn J Risk Uncertain 4:29–59, 1991). It gives rise to different evaluations of gains and losses, which are not distinguished in the standard cumulative model, and it provides a unified treatment of both risk and uncertainty.
April 2014
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1,815 Reads
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38 Citations
Estudios de Psicología
This article presents a criticism of the theory of expected utility as a descriptive model of decision making under risk, and presents the prospective theory as an alternative model. The choices between risky alternatives show several general effects that are not consistent with the principal of the theory of utility. The certainty effect, for instance, contributes to the aversion to risk when it is about certain gain and to the attraction to risk when the choices implicate certain loss. The isolation effect contributes to non-consistent preferences when the same choice is presented in different ways. An alternative theory of choice is developed, where measurement values are given to gain and loss instead of to the final results and where probabilities where substituted by decision importance. The function of validation is usually concave for gain, and more acelerate for loss than for gain. The decision importance is normally lower than its respective probabilities, except for the lowest probabilities. The atraction to gambling and to insurances purchase may be increased by the preference towards the consideration of low probabilities. Este artículo presenta una crítica a la teoría de la utilidad esperada como modelo descriptivo de la toma de decisiones bajo riesgo y presenta un modelo alternativo llamado teoría prospectiva. Las elecciones entre alternativas arriesgadas muestran diversos efectos generales que son inconsistentes con los principios básicos de la teoría de la utilidad. En concreto, el efecto de certidumbre contribuye a la aversión del riesgo cuando se trata de ganancias seguras y a la atracción por el riesgo en caso de elecciones con pérdidas seguras. Además, el efecto de aislamiento lleva a preferencias inconsistentes cuando una misma elección se presenta de formas diferentes. Se desarrolla una teoría alternativa de la elección, donde los valores de medida son asignados a las ganancias y a las pérdidas en vez de a los resultados finales y donde se sustituyen las probabilidades por pesos de decisión. La función de valoración es normalmente cóncava para las ganancias y normalmente convexa para las pérdidas, y generalmente más acelerada para las pérdidas que para las ganancias. Los pesos de decisión son, generalmente, más bajos que sus correspondientes probabilidades, excepto en el caso de probabilidades bajas. Que se ponderen más las probabilidades bajas puede contribuir a la atracción tanto por el juego como por la compra de seguros.
November 2012
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131 Reads
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28 Citations
This chapter reviews selected psychological research on human decision making. The classical, rational theory of choice holds that decisions reflect consistent, stable preferences, which are unaffected by logically immaterial changes in context, presentation, or description. In contrast, empirical research has found preferences to be sensitive to logically irrelevant changes in the context of decision, in how options are described, and in how preferences are elicited. Decisions are also swayed by affect and by decisional conflict and are often driven by the reasons that are most accessible at the moment of choice, leading to preference reversals when, for example, different reasons are made accessible. More broadly, decision makers tend to adopt a local" perspective: They accept decisions as described and focus on the most salient attributes, even when a more global" perspective, less influenced by local context and frame, might yield decisions that are less biased by temporary and irrelevant concerns. Future directions and implications for theory and practice are discussed.
January 2012
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251 Reads
STRESZCZENIE: Teoria perspektywy D. Kahnemana i A. Tversky'ego zakłada, że ludzie są bardziej skłonni do podejmowania ryzyka dzia-łając w sferze strat, niż w sferze zysków. Zgodnie z tym założeniem funkcja wartości ma wypukły przebieg w sferze zysków, natomiast wklęsły w sferze strat. Te założenia poddano weryfikacji w bada-niach dotyczących podejmowanego ryzyka rekreacyjnego osób wy-konujących skoki na bungee. Badania ankietowe przeprowadzono na grupie 85 osób. Wnioski. Uzyskane wyniki nie potwierdziły hipotezy mówiącej o wypukłym przebiegu funkcji wartości w obsza-rze zysków i antycypowanej satysfakcji ze skoku. Uzyskane wyniki znajdują się wyłącznie w pierwszej ćwiartce funkcji użyteczności. Występują zmiany w intensywności doświadczeń emocjonalnych po skoku w porównaniu z emocjami przed skokiem. Różnice istotne statystycznie występują przy ocenie 1) wartości emocji, 2) poczucia kontroli, 3) poczucia aktywacji, 4) poczucia satysfakcji i otrzymania nagrody/straty. Sfalsyfikowany został model wiążący: wartości emo-cji, poczucie kontroli, aktywację oraz ryzyko z poczuciem satysfakcji i otrzymania (lub nie) nagrody przed i po wykonaniu skoku. Skoki na bungee należą do sytuacji ryzykownych, ale istotna tutaj jest dobrowolność podjęcia przez badanych decyzji o skoku. Wszyscy skoczkowie przewidywali doświadczenie satysfakcji z oddanego skoku, w terminologii teorii perspektywy znajdowali się zatem wyłącznie w sferze zysków Adres do korespondencji: Ryszard Makarowski, Instytut Psychologii,
December 2011
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55 Reads
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2 Citations
May 2008
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25 Reads
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121 Citations
This interdisciplinary work is a collection of major essays on reasoning: deductive, inductive, abductive, belief revision, defeasible (non-monotonic), cross cultural, conversational, and argumentative. They are each oriented toward contemporary empirical studies. The book focuses on foundational issues, including paradoxes, fallacies, and debates about the nature of rationality, the traditional modes of reasoning, as well as counterfactual and causal reasoning. It also includes chapters on the interface between reasoning and other forms of thought. In general, this last set of essays represents growth points in reasoning research, drawing connections to pragmatics, cross-cultural studies, emotion and evolution.
August 2006
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7 Reads
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37 Citations
One of the main themes that has emerged from behavioral decision research during the past three decades is the view that people's preferences are often constructed in the process of elicitation. This idea is derived from studies demonstrating that normatively equivalent methods of elicitation (e.g., choice and pricing) give rise to systematically different responses. These preference reversals violate the principle of procedure invariance that is fundamental to all theories of rational choice. If different elicitation procedures produce different orderings of options, how can preferences be defined and in what sense do they exist? This book shows not only the historical roots of preference construction but also the blossoming of the concept within psychology, law, marketing, philosophy, environmental policy, and economics. Decision making is now understood to be a highly contingent form of information processing, sensitive to task complexity, time pressure, response mode, framing, reference points, and other contextual factors.
... Over time, the momentum effect can produce an overpricing of winners and an underpricing of losers, and this requires explanation. In 1982, Tversky and Kahneman introduced the availability heuristic: information that is easily retrieved from memory (more available) is assigned greater probability and given more emphasis in judgments (Tversky and Kahneman 1982). The ease of retrieval rests on the frequency of experience and other factors that make information more salient, such as relating to hopes and fears, being learned through experience, rather than from reports, and when it concerns events rather than states. ...
April 2003
... While the term 'bias' is not settled across research fields, it is often used to refer to our cognitive abilities as human beings invariably being 'bounded' or 'limited' or suboptimal relative to some benchmark of rationality(Kahneman and Tversky, 1996). use, available at https://www.cambridge.org/core/terms. ...
Reference:
Dark patterns and consumer vulnerability
July 1996
Psychological Review
... Discrepancies in preferences elicited by different elicitation methods have long been recognized in the literature and are known as preference reversals (first reported by Lichtenstein & Slovic, 1971). The literature does not point to one elicitation method as most closely approximating the "true" subjective value but points towards differences between elicitation methods in considerations, weighting, valuation, and integration of inputs, and/or differences in the mapping from subjective value to observed responses (see e.g., Bettman et al., 1998;Johnson & Busemeyer, 2005;Kvam & Busemeyer, 2020;Slovic, 1995;Tversky et al., 1990;Warren et al., 2011). Any divergence in the effect of reward immediacy between elicitation methods could have important implications, as it suggests vulnerability to regret. ...
August 2006
... In contrast to this monistic approach, literature on moral philosophy (Dewey, 1930(Dewey, [1922; Minteer and Manning, 1999;Minteer, 2005;Norton, 2005;Nussbaum, 2000;O'Neill, 1993O'Neill, , 1997Radin, 1997;Raz, 1986;Richardson, 1997), in political economy (Costa and Caldas, 2011;Hirschman, 1985;Nussbaum and Sen, 1993;Sen, 1977, Spash, 2008 and in the behavioural sciences, including cognitive and social psychology, neurosciences and behavioural economics (Costa, 2013;Gigerenzer, 2010;Greene et al., 2004;James, 1890;Lichtenstein and Slovic, 2006;McGraw and Tetlock, 2005;Shafir et al., 2006;Tetlock et al., 2000;Tetlock, 2003), recognises the tension stemming from the conflict between incommensurable values (or ends) and the reluctance to trade off these values as a source of moral difficulty in individual decision-making. Faced with moral difficulty, people may simply refuse to 1. ...
August 2006
... This contrasts with computational explanations, where probability plays a significant role and causality is often regarded as the highest standard for quality explanations. • Limited Role of Probabilities: While truth and likelihood matter, causal explanations are often preferred over statistical probabilities, as the most probable explanation may not be the most satisfying [55]. ...
May 2008
... La plupart de nos décisions quotidiennes et de nos processus de pensée se font dans l'incertitude, qu'il s'agisse de ce que nous pensons de l'état du monde et de nos propres états subjectifs, faits d'humeurs, de ressentiments et de désirs ou non d'agir (Shafir et Tversky, 2003). Mais, c'est bien le but de la recherche scientifique de combler les écarts entre les problèmes réels ou perçus, d'une part, et les moyens de les limiter à l'aide de solutions rationnelles d'autre part. ...
April 2003
... Brotherton and French (2015) supported this theory with research in which respondents who interpreted vague and contrived events as intentional and planned were more likely to resort to conspiracy thinking than respondents who interpreted these events as random. In another study, the same authors found that participants with conspiracy thinking tended to commit conjunction fallacies, which are described by Tversky and Kahneman (2008) as a specific error in reasoning where people overestimate the probability of co-occurring events (e.g., "Olivia is a saleswoman in the shop." is a more likely statement than "Olivia is a shop assistant and also active in the anti-globalization movement.") (Brotherton & French, 2014;Dagnall, Denovan, Drinkwater, Parker, & Clough, 2017). ...
July 2002
... Studies have shown that investing in the stock market is an activity in which individuals tend to display a significant degree of overconfidence (Baker & Nofsinger, 2002). Despite the fact that the stock market is inherently unpredictable, even experts are more prone to overconfidence than novices (Griffin & Tversky, 1992). It is believed that individuals who possess a heightened sense of confidence in their investment capabilities may be more inclined to work as traders or actively manage their own investment portfolios, leading to a selection bias favouring overconfidence within the investor group. ...
July 2002
... The representational theory of measurement (Suppes and Zinnes 1963;Krantz, Suppes, and Luce 1989;Luce et al. 1990;Luce and Suppes 2002) proves to be a useful formalization for my purposes-comparability can be seen to follow from the use of a representational theorem to map empirical quantities to numerical scales that preserve order. 6 According to the representational theory, there are two central problems for measurement: (1) what is the representation theorem that maps empirical relations to numerical relations (finding a representation theorem)? ...
Reference:
The Logit Model Measurement Problem
December 1990
... Le diverse teorie dell'acquisto possono essere collocate in tre grandi paradigmi: 1) l'approccio cognitivo; 2) l'approccio di rinforzo; 3) l'approccio abitudinario. 59 Metodo di analisi del fenomeno giuridico che, oltre a utilizzare gli strumenti della microeconomia, utilizza i risultati provenienti dalla psicologia cognitiva. In particolare, esso studia il comportamento umano per riuscire a prevedere in che modo i soggetti rispondono agli incentivi posti dalle norme giuridiche. ...
July 2002