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Explaining heterogeneity in utility functions by individual differences in decision modes

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  • Daniel Schunk

    ()
    (Munich Center for the Economics of Aging (MEA))

Abstract

The curvature of utility functions varies between people. We suggest that there is a relationship between individual differences in preferred decision mode (intuition vs. deliberation) and the curvature of the individual utility function. If a person habitually prefers a deliberative mode, the utility function should be nearly linear, while it should be curved when a person prefers the intuitive mode. In this study the utility functions of the subjects were assessed using a lottery-based elicitation method and related to a measurement of the habitual mode preference for intuition and deliberation. Results confirm that people who prefer the deliberative mode have a utility function that is more linear than for people who prefer the intuitive mode. Our findings indicate a stronger affective bias of subjective values in intuitive than deliberate decision makers. While deliberative decision makers may have rather used the stated values, intuitive decision makers may have additionally integrated affective reactions towards the stimuli into the decision.

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Paper provided by Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy in its series MEA discussion paper series with number 05078.

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Date of creation: 21 Jun 2005
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Handle: RePEc:mea:meawpa:05078

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  1. Glaser, Markus & Weber, Martin, 2005. "Overconfidence and Trading Volume," SIFR Research Report Series 40, Institute for Financial Research.
  2. Peter Wakker & Daniel Deneffe, 1996. "Eliciting von Neumann-Morgenstern Utilities When Probabilities Are Distorted or Unknown," Management Science, INFORMS, vol. 42(8), pages 1131-1150, August.
  3. Peter H. Farquhar, 1984. "State of the Art---Utility Assessment Methods," Management Science, INFORMS, vol. 30(11), pages 1283-1300, November.
  4. Loewenstein, George & O'Donoghue, Ted, 2004. "Animal Spirits: Affective and Deliberative Processes in Economic Behavior," Working Papers 04-14, Cornell University, Center for Analytic Economics.
  5. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
  6. Fetherstonhaugh, David, et al, 1997. "Insensitivity to the Value of Human Life: A Study of Psychophysical Numbing," Journal of Risk and Uncertainty, Springer, vol. 14(3), pages 283-300, May-June.
  7. Johnson, Eric J. & Payne, John W. & Bettman, James R., 1988. "Information displays and preference reversals," Organizational Behavior and Human Decision Processes, Elsevier, vol. 42(1), pages 1-21, August.
  8. Mano, Haim, 1994. "Risk-Taking, Framing Effects, and Affect," Organizational Behavior and Human Decision Processes, Elsevier, vol. 57(1), pages 38-58, January.
  9. Wright, William F. & Bower, Gordon H., 1992. "Mood effects on subjective probability assessment," Organizational Behavior and Human Decision Processes, Elsevier, vol. 52(2), pages 276-291, July.
  10. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
  11. Mohammed Abdellaoui, 2000. "Parameter-Free Elicitation of Utility and Probability Weighting Functions," Management Science, INFORMS, vol. 46(11), pages 1497-1512, November.
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Cited by:
  1. José Lejarraga & Ester Martinez-Ros, 2014. "Size, R&D productivity and Decision Styles," Small Business Economics, Springer, vol. 42(3), pages 643-662, March.
  2. Booij, Adam S. & van de Kuilen, Gijs, 2009. "A parameter-free analysis of the utility of money for the general population under prospect theory," Journal of Economic Psychology, Elsevier, vol. 30(4), pages 651-666, August.
  3. Nathalie Etchart-Vincent, 2009. "The shape of the utility function under risk in the loss domain and the "ruinous losses" hypothesis: some experimental results," Economics Bulletin, AccessEcon, vol. 29(2), pages 1393-1402.
  4. Markus Glaser & Martin Weber, 2007. "Overconfidence and trading volume," The Geneva Papers on Risk and Insurance Theory, Springer, vol. 32(1), pages 1-36, June.
  5. Peter Wakker & Veronika Köbberling & Christiane Schwieren, 2007. "Prospect-theory’s Diminishing Sensitivity Versus Economics’ Intrinsic Utility of Money: How the Introduction of the Euro can be Used to Disentangle the Two Empirically," Theory and Decision, Springer, vol. 63(3), pages 205-231, November.
  6. Guido Baltussen & G. Post & Martijn Assem & Peter Wakker, 2012. "Random incentive systems in a dynamic choice experiment," Experimental Economics, Springer, vol. 15(3), pages 418-443, September.
  7. Gould, Stephen J. & Kramer, Thomas, 2009. ""What's it Worth to Me?" Three interpretive studies of the relative roles of task-oriented and reflexive processes in separate versus joint value construction," Journal of Economic Psychology, Elsevier, vol. 30(6), pages 840-858, December.

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