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Multiattribute Risky Choice Behavior: The Editing of Complex Prospects

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Author Info

  • John W. Payne

    (Fuqua School of Business, Duke University, Durham, North Carolina 27706)

  • Dan J. Laughhunn

    (Center for International Economic and Business Studies, University of Florida, Gainesville, Florida 32605)

  • Roy Crum

    (Center for International Economic and Business Studies, University of Florida, Gainesville, Florida 32605)

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    Abstract

    This investigation draws upon concepts from prospect theory (Kahneman and Tversky [Kahneman, D., A. Tversky. 1979. Prospect theory: an analysis of decisions under risk. Econometrica 47 263--291.]) and multiattribute utility theory (Keeney and Raiffa [Keeney, R. L., H. Raiffa. 1976. Decisions with Multiple Objectives: Preferences and Value Tradeoffs. Wiley, New York.]) in an examination of the multiattribute risky choice behavior of 128 managers. The questions of how managers edit multiattribute prospects and how editing relates to various independence assumptions were explored. The major result is that managers appear to violate attribute independence in its general form, and especially in the form of the marginality assumption. The most common form of behavior observed was multiattribute risk aversion for prospects involving only gains and multiattribute risk seeking for prospects involving only losses. This result reinforces the importance of a target, reference point, or aspiration level that has been found in earlier studies of single attribute risky choice. Furthermore, the result casts doubt on such commonly used multiattribute utility functions as the additive, multiplicative, and multilinear forms. The implications of the results for the development of multiattribute risky decision aids are discussed.

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    File URL: http://dx.doi.org/10.1287/mnsc.30.11.1350
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 30 (1984)
    Issue (Month): 11 (November)
    Pages: 1350-1361

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    Handle: RePEc:inm:ormnsc:v:30:y:1984:i:11:p:1350-1361

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    Related research

    Keywords: decision making; risk; multiattribute utility theory;

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    Cited by:
    1. Kalayci, Erkan & Basdas, Ulkem, 2010. "Does the prospect theory also hold for power traders? Empirical evidence from a Swiss energy company," Review of Financial Economics, Elsevier, vol. 19(1), pages 38-45, January.
    2. Kuhberger, Anton, 1998. "The Influence of Framing on Risky Decisions: A Meta-analysis," Organizational Behavior and Human Decision Processes, Elsevier, vol. 75(1), pages 23-55, July.
    3. Levy, Haim & Levy, Moshe, 2002. "Experimental test of the prospect theory value function: A stochastic dominance approach," Organizational Behavior and Human Decision Processes, Elsevier, vol. 89(2), pages 1058-1081, November.
    4. Knudsen, Thorbjørn, 2008. "Reference groups and variable risk strategies," Journal of Economic Behavior & Organization, Elsevier, vol. 66(1), pages 22-36, April.
    5. Edwards, Kimberley D., 1996. "Prospect theory: A literature review," International Review of Financial Analysis, Elsevier, vol. 5(1), pages 19-38.

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