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24
Choice and the relative pleasure of consequences
 Psychological Bulletin
, 2000
"... Although pleasure played a central role in early theories of decision making, it gradually became peripheral, argely because of measurement concerns. Normative theories became more mathematical, and descriptive theories emphasized cognition over emotion. In recent years, there has been a renewed int ..."
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Although pleasure played a central role in early theories of decision making, it gradually became peripheral, argely because of measurement concerns. Normative theories became more mathematical, and descriptive theories emphasized cognition over emotion. In recent years, there has been a renewed interest in emotions and choice. This article examines attempts to model pleasure and pain in terms of utilities, decision weights, and counterfactual comparisons. Research on disappointment and regret has provided both empirical and theoretical insights. Many researchers now realize that the predictability of the emotions that follow from decisions is as important as the predictability of choice. Anyone who has ever made an important decision knows that emotions play a role. Not only do immediate motions, or those experienced while making a choice, shape decisions but also anticipated emotions about future consequences. Anticipated feelings of guilt, dread, and excitement allow people to simulate what life would be like if they made one choice or another. This article, examines (a) the history of choice theories that have, in one way or another, incorporated anticipated emotions; (b) the results of
On the Intuition of RankDependent Utility
, 2000
"... Among the most popular models for decision under risk and uncertainty are the rankdependent models, introduced by Quiggin and Schmeidler. Central concepts in these models are rankdependence and comonotonicity. It has been suggested in the literature that these concepts are technical tools that hav ..."
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Among the most popular models for decision under risk and uncertainty are the rankdependent models, introduced by Quiggin and Schmeidler. Central concepts in these models are rankdependence and comonotonicity. It has been suggested in the literature that these concepts are technical tools that have no intuitive or empirical content. This paper describes such contents. As
From subjective probabilities to decision weights: The effect of asymmetric loss functions on the evaluation of uncertain outcomes and events
 Psychological Bulletin(115
, 1994
"... Much of decision aiding uses a divideandconquer strategy to help people with risky decisions. Assessing the utility of outcomes and one's degree of belief in their likelihood are assumed to be separable tasks, the results of which can then be combined to determine the preferred alternative. E ..."
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Cited by 48 (3 self)
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Much of decision aiding uses a divideandconquer strategy to help people with risky decisions. Assessing the utility of outcomes and one's degree of belief in their likelihood are assumed to be separable tasks, the results of which can then be combined to determine the preferred alternative. Evidence from different areas of psychology now provides a growing consensus that this assumption is too simplistic. Observed dependencies in the evaluation of uncertain outcomes and the likelihood of the events giving rise to them are frequent and systematic. Dependencies seem to derive from general strategic processes that take into consideration asymmetric costs of over vs. underestimates of uncertain quantities. This asymmetriclossfunction interpretation provides a psychological explanation for observed judgments and decisions under uncertainty and links them to other judgment tasks. The decision weights estimated when applying dependentutility models to choices are not simply reflections of perceived subjective probability but a response to several constraints, all of which modify the weight of risky or uncertain outcomes. Perhaps more than any other social science, psychology maintains an ongoing debate about its status as a coherent field of scholarship (cf. Fowler, 1990; Koch, 1969; Simon, 1992), often
Risk Aversion in the Laboratory
 of Research in Experimental Economics. Emerald Group Publishing Limited
, 2008
"... We review the experimental evidence on risk aversion in controlled laboratory settings. We review the strengths and weaknesses of alternative elicitation procedures, the strengths and weaknesses of alternative estimation procedures, and finally the effect of controlling for risk attitudes on inferen ..."
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Cited by 39 (2 self)
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We review the experimental evidence on risk aversion in controlled laboratory settings. We review the strengths and weaknesses of alternative elicitation procedures, the strengths and weaknesses of alternative estimation procedures, and finally the effect of controlling for risk attitudes on inferences in experiments. Attitudes to risk are one of the primitives of economics. Individual preferences over risky prospects are taken as given and subjective in all standard economic theory. Turning to the characterization of risk in applied work, however, one observes many restrictive assumptions being used. In many cases individuals are simply assumed to be risk neutral;1 or perhaps to have the same constant absolute or relative aversion to risk.2 Assumptions buy tractability, of course, but at a cost. How plausible are the restrictive assumptions about risk attitudes that are popularly used? If they are not plausible, perhaps there is some way in which one can characterize the distribution of risk attitudes so that it can be used to analyze the implications of relaxing these assumptions. If so, such characterizations will condition inferences about choice behavior under uncertainty, bidding in auctions, and behavior in games.
Original and cumulative prospect theory: A discussion of empirical differences
 Journal of Behavioral Decision Making
, 1997
"... This paper discusses di€erences between prospect theory and cumulative prospect theory. It shows that cumulative prospect theory is not merely a formal correction of some theoretical problems in prospect theory, but it also gives di€erent predictions. Some experiments by Lola Lopes are reanalyzed, ..."
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This paper discusses di€erences between prospect theory and cumulative prospect theory. It shows that cumulative prospect theory is not merely a formal correction of some theoretical problems in prospect theory, but it also gives di€erent predictions. Some experiments by Lola Lopes are reanalyzed, and are demonstrated to favor cumulative prospect theory over prospect theory. It turns out that the mathematical form of cumulative prospect theory is well suited for modeling the psychological phenomenon of diminishing sensitivity. *c 1997 by John Wiley & Sons, Ltd. KEY WORDS
The ongoing dialog between empirical science and measurement theory
 Journal of Mathematical Psychology
, 1996
"... This review article attempts to highlight from my personal perspective some of the major developments in the representational theory of measurement during the past 50 years. Emphasis is placed on the ongoing interplay between the development of abstract theory and the attempts to apply it to empiric ..."
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This review article attempts to highlight from my personal perspective some of the major developments in the representational theory of measurement during the past 50 years. Emphasis is placed on the ongoing interplay between the development of abstract theory and the attempts to apply it to empirically testable phenomena. The article has four major sections. The first concerns classical representational measurement, which was the successful attempt to formulate the major measurement methods of classical physics: extensive and additive conjoint structures, their distributive interlock in dimensional analysis, and intensive (averaging) structures. The second illustrates a nontrivial behavioral example using both extensive and conjoint measurement plus functional equations to arrive at rank and signdependent utility (also called cumulative prospect) representations for decision making under risk. The third section, contemporary representational measurement, somewhat overlaps the classical one but includes new findings and approaches: representations of nonadditive concatenation and conjoint structures; a general theory of scale types; results for general, finitely unique, homogeneous structures; structures that are homogeneous between singular points; generalized distributive triples; and a generalization of dimensional analysis to include any ratio scalable attribute; and the concept of meaningfulness. The final section concerns applications of the latter ideas to psychophysical scaling and merging functions.] 1996 Academic Press, Inc. 1.
Lower Partial Moments As Measures of Perceived Risk  An Experimental Study
, 1998
"... The paper reports the results of an experiment on individual investors’ risk perception in a stock market context under two different modes of information presentation (framings). While the concentration on two moments of a return distribution has been a cornerstone of neoclassic finance theory fro ..."
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The paper reports the results of an experiment on individual investors’ risk perception in a stock market context under two different modes of information presentation (framings). While the concentration on two moments of a return distribution has been a cornerstone of neoclassic finance theory from the start (Markowitz 1952) an alternative’s mean and variance have been selected more by convenience and ease of computation than by theoretical or empirical justification. Even though the most influential models are based on variance as risk measure there has always been much discontent with this proposal. The symmetrical nature of variance does not capture the common notion of risk as something undesired, e. g. negative deviations from a reference point. Instead, lower partial moments (LPM) seem to be more appropriate for measuring risk. The purpose of this paper is to examine experimentally private investors’ risk perception in a financial context. The focus is on the correspondence of people’s risk perceptions with specific LPMs. The main findings can be summarized as follows. First, symmetrical risk measures like variance can be clearly dismissed in favor of shortfall measures like LPMs. Second, the reference point (target) of individuals for defining losses is not a distribution’s mean but the initial price in a time series of stock prices. Third, the LPM which explains risk perception best is the LPM0, i. e. the probability of loss. Fourth,
Moderation of preference reversals in the long run
 Journal of Experimental Psychology: Human Perception and Performance
, 1990
"... This study explored how preference reversals, induced by changes in response mode (choice vs. pricing), are moderated by how lotteries are represented, as being played 1, 10, or 100 times. Ss chose which of a pair of gambles they preferred to play and determined the minimum selling price of each gam ..."
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This study explored how preference reversals, induced by changes in response mode (choice vs. pricing), are moderated by how lotteries are represented, as being played 1, 10, or 100 times. Ss chose which of a pair of gambles they preferred to play and determined the minimum selling price of each gamble. Replicating previous research, the preference reversal was obtained for singleplay representations: Ss tended to choose the gambles with the higher probabilities of winning, but priced them lower. However, for multipleplay representations, preference reversals were reduced, and consistency between pricing and choice behaviors was increased. Both response modes were sensitive to differences in the expected values of gambles, but sensitivity did not vary significantly with the number of plays. These results support the hypothesis that violations of expected utility theory are reduced for multipleplay gambles. The evaluation of a monetary gamble requires consideration of two basic types of information: (a) the probabilities associated with winning and losing, and (b) the amounts to be won and lost. The welldocumented phenomenon of preference reversals provides strong evidence that the processing of this information depends on how the evaluation is expressed
Dominance Violations in Judged Prices of Two and Threeoutcome Gambles
"... The dominance principle states that one should prefer the option with consequences that are at least as good as those of other options for any state of the world. When applied to judged prices of gambles, the dominance principle requires that increasing one or more outcomes of a gamble should increa ..."
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The dominance principle states that one should prefer the option with consequences that are at least as good as those of other options for any state of the world. When applied to judged prices of gambles, the dominance principle requires that increasing one or more outcomes of a gamble should increase the judged price of the gamble, with everything else held constant. Previous research has uncovered systematic violations of the dominance principle: people assign higher prices to a gamble with a large probability of winning an amount, Y, otherwise zero, than they do to a superior gamble with the same chance of winning Y, otherwise winning a small amount, X! These violations can be explained by a configuralweight theory in which twooutcome gambles are represented with two sets of decision weights; one set for outcomes having values of zero and another set for lowervalued outcomes that have nonzero values. The present paper investigates whether dominance violations are limited to twooutcome gambles. Results show that people violate the dominance principle with threeoutcome gambles even with financial incentives. Furthermore, results could be predicted from the configuralweight theory. The data do not support the view that configural weighting is caused by a shift in strategy that would apply only to twooutcome gambles. KEY WORDS dominance principle; twooutcome gambles; threeoutcome gambles; configuralweight theory
A Theory of Coarse Utility
 JOURNAL OF RISK AND UNCERTAINTY, 11:1749 (1995)
, 1995
"... This article presents a descriptive theory for complex choice problems. In line with the bounded rationality assumption, we hypothesize that decision makers modify a complex choice into some coarse approximations, each of which is a binary lottery. We define the value of a best coarse approximation ..."
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Cited by 4 (2 self)
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This article presents a descriptive theory for complex choice problems. In line with the bounded rationality assumption, we hypothesize that decision makers modify a complex choice into some coarse approximations, each of which is a binary lottery. We define the value of a best coarse approximation to be the utility of the choice. Using this paradigm, we axiomatize and justify a new utility function called the coarse utility function. We show that the coarse utility function approximates the rank and signdependent utility function. It satisfies dominance but admits violations of independence. It reduces judgmental load and allows flexible judgmental information. It accommodates phenomena associated with probability distortions and provides a better esolution to the St. Petersburg paradox than the expected and rankdependent theories. Key words: decision analysis, utility theory, coarse utility function, rankdependent utilities Complexity lies deep in the nature of things. Discovering tolerable approximation procedures and heuristics lies at the heart of human intelligence (Simon, 1978). This article presents a descriptive theory of complex decision problems. In line with the bounded rationality assumption (Simon, 1955), we hypothesize that decision makers (DMs) view complex choices approximately. We argue that DMs may not attend to all the outcomes