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Probability weighting and the ‘level’ and ‘spacing’ of outcomes: An experimental study over losses

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  • Nathalie Etchart-Vincent

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Abstract

The main goal of the experimental study described in this paper is to investigate the sensitivity of probability weighting to the payoff structure of the gambling situation--namely the level of consequences at stake and the spacing between them--in the loss domain. For that purpose, three kinds of gambles are introduced: two kinds of homogeneous gambles (involving either small or large losses), and heterogeneous gambles involving both large and small losses. The findings suggest that at least for moderate/high probability of loss do both 'level' and 'spacing' effects reach significance, with the impact of 'spacing' being both opposite to and stronger than the impact of 'level'. As compared to small-loss gambles, large-loss gambles appear to enhance probabilistic optimism, while heterogeneous gambles tend to increase pessimism.

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File URL: http://hdl.handle.net/10.1007/s11166-009-9066-0
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Bibliographic Info

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

Volume (Year): 39 (2009)
Issue (Month): 1 (August)
Pages: 45-63

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Handle: RePEc:kap:jrisku:v:39:y:2009:i:1:p:45-63

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

Related research

Keywords: Individual decision making under risk; Prospect theory; Losses; Probability weighting; C91; D81;

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References

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Cited by:
  1. Nathalie Etchart-Vincent, 2009. "The shape of the utility function under risk in the loss domain and the 'ruinous losses' hypothesis: some experimental results," Post-Print hal-00395871, HAL.
  2. Nathalie Etchart-Vincent & Olivier l’Haridon, 2011. "Monetary incentives in the loss domain and behavior toward risk: An experimental comparison of three reward schemes including real losses," Journal of Risk and Uncertainty, Springer, vol. 42(1), pages 61-83, February.
  3. W. Botzen & J. Aerts & J. Bergh, 2013. "Individual preferences for reducing flood risk to near zero through elevation," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 18(2), pages 229-244, February.
  4. Olivier Chanel & Graciela Chichilnisky, 2009. "The influence of fear in decisions: Experimental evidence," Journal of Risk and Uncertainty, Springer, vol. 39(3), pages 271-298, December.

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