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Reversals of Preference between Compound and Simple Risks: The Role of Editing Heuristics

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  • Ranyard, Rob
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    Abstract

    A reversal of preference between compound and simple risks was demonstrated in the context of compound gambles with loss elements transparently in common. The role of predecision editing heuristics in this violation of the Invariance Principle was explored in a process-tracing study. Verbal reports showed that cancellation-by-similarity and amalgamation heuristics were differentially applied to simple and compound risks depending on their similarity structure. It is argued that such heuristics are often useful in simplifying complex choice problems without loss of important information. However, the inappropriate cancellation of elements of compound risk can be maladaptive, and can contribute to a lack of insight into the true nature of these risks. Copyright 1995 by Kluwer Academic Publishers

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    Bibliographic Info

    Article provided by Springer in its journal Journal of Risk and Uncertainty.

    Volume (Year): 11 (1995)
    Issue (Month): 2 (September)
    Pages: 159-75

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    Handle: RePEc:kap:jrisku:v:11:y:1995:i:2:p:159-75

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    Web page: http://www.springerlink.com/link.asp?id=100299

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    Cited by:
    1. Yves Alarie & Georges Dionne, 2006. "Lottery qualities," Journal of Risk and Uncertainty, Springer, vol. 32(3), pages 195-216, May.
    2. Berg, Joyce E. & Dickhaut, John W. & Rietz, Thomas A., 2010. "Preference reversals: The impact of truth-revealing monetary incentives," Games and Economic Behavior, Elsevier, vol. 68(2), pages 443-468, March.
    3. Yves Alarie & Georges Dionne, 2004. "On the Necessity of Using Lottery Qualities," Cahiers de recherche 0415, CIRPEE.

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