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Is brain activity observable that leads to an evaluation of a probability of 0.5 that is different from 0.5 in binary lottery choices?

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Author Info

  • Marcus Heldmann

    ()
    (Otto-von-Guericke University Magdeburg)

  • Ralf Morgenstern

    ()
    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

  • Thomas Münte

    ()
    (Otto-von-Guericke University Magdeburg)

  • Bodo Vogt

    ()
    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

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    Abstract

    This paper focuses on the problem of probability weighing in the evaluation of lotteries. According to Prospect Theory a probability of 0.5 has a weight of smaller than 0.5. We conduct an EEG experiment in which we compare the results of the evaluation of binary lotteries by certainty equivalents with the results of the bisection method. The bisection method gives the amount of money that corresponds to the midpoint of the utilities of the two payoffs in a binary lottery as it has been shown previously. In this method probabilities are not evaluated. We analyzed EEG data focused on whether a probability is evaluated or not. Our data show differences between the two methods connected with the attention towards sure monetary payoffs, but they do not show brain activity connected with a devaluation of the probability of 0.5.

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    File URL: http://www.ww.uni-magdeburg.de/fwwdeka/femm/a2009_Dateien/2009_03.pdf
    File Function: First version, 2009
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    Bibliographic Info

    Paper provided by Otto-von-Guericke University Magdeburg, Faculty of Economics and Management in its series FEMM Working Papers with number 09003.

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    Length: 22 pages
    Date of creation: Jan 2009
    Date of revision:
    Handle: RePEc:mag:wpaper:09003

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    1. Mohammed Abdellaoui, 2000. "Parameter-Free Elicitation of Utility and Probability Weighting Functions," Management Science, INFORMS, INFORMS, vol. 46(11), pages 1497-1512, November.
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