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An Empirical Examination of Different Interpretations of the Prospect Theory\'s Framing-Hypothesis

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  • Stocké, Volker

    (Sonderforschungsbereich 504)

Abstract

The Prospect-Theory only vaguely specifies the factors expected to determine the decision maker's reference points and therefore the emergence of framing-effects. This theoretical shortcoming is demonstrated, using the usually proposed explanation for the wording-effects observed in the context of the Asian Disease problem (ADP). Various possible interpretations of the Prospect Theory's framing-hypothesis are proposed. Accordingly, the framing-effects may be caused either by the presence of positive or negative linguistic symbols, or may be the result of positive or negative outcomes presented under the different framing-conditions. A third interpretation could be that both dimensions must occur simultaneously in order to cause framing-effects. Appropriately modified versions of the ADP are used to test the independent explanatory power of each isolated factor. None of the possible interpretations of the Prospect Theory's framing-hypothesis can be confirmed. It is concluded that other processes and determinants, not considered in the framework of the Prospect Theory, must be regarded as responsible for the observed wording-effects.

Suggested Citation

  • Stocké, Volker, 2001. "An Empirical Examination of Different Interpretations of the Prospect Theory\'s Framing-Hypothesis," Sonderforschungsbereich 504 Publications 01-23, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    • Handle: RePEc:xrs:sfbmaa:01-23
    Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged. The author would like furthermore to thank Hartmut Esser, Johannes Kopp and the participants of the 9th International Conference on the Foundations and Applications of Utility, Risk and Decision Theory (Marrakech, June 2-5, 1999) for valuable and helpful comments on earlier versions of this paper.
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