Reflections on gains and losses: a 2x2x7 experiment
Reflections on gains and losses: a 2x2x7 experiment
Citació
- Journal of Risk and Uncertainty, 33, 3, 2006
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Resum
We test whether risk attitudes change when losses instead of gains are involved. The study of gain-loss asymmetries has been largely confined to reflected choices, where all the money amounts of a positive prospect are multiplied by minus one. We define the decomposition reflection = translation + probability switch, and experimentally find both a translation effect (risk attraction becomes more frequent when gains are translated into losses) and a probability switch effect (risk attraction becomes more frequent when the probability of the best outcome decreases). Surprisingly, the switch effect is somewhat stronger than the translation effect, negating a conventional reflection effect when one starts with choices between gains with a low probability of the best outcome. We conclude by arguing that, while both the translation effect and the switch effect contradict the expected utility hypothesis, the translation effect implies a deeper violation of standard preference theory.Director i departament
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