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Reflections on gains and losses: A 2 × 2 × 7 experiment

  • Antoni Bosch-Domènech

    ()

  • Joaquim Silvestre

    ()

What determines risk attraction or aversion? We experimentally examine three factors: the gain-loss dichotomy, the probabilities (0.2 vs. 0.8), and the money at risk (7 amounts). We find that the majority display risk attraction for small amounts of money, and risk aversion for larger amounts. Yet the frequency of risk attraction varies according to the gain-loss dichotomy and the probabilities. Kahneman and Tversky studied gain-loss reflections. We submit that a reflection can be decomposed into a translation and a probability switch. We find significant translation and switch effects, which are of comparable magnitude, a result that is equidistant from the diverging two popular views inspired by Prospect Theory: the gain-loss asymmetry, and the fourfold pattern. Copyright Springer Science + Business Media, LLC 2006

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File URL: http://hdl.handle.net/10.1007/s11166-006-0333-z
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Article provided by Springer in its journal Journal of Risk and Uncertainty.

Volume (Year): 33 (2006)
Issue (Month): 3 (December)
Pages: 217-235

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Handle: RePEc:kap:jrisku:v:33:y:2006:i:3:p:217-235
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100299

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  1. Matthew Rabin., 2000. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Economics Working Papers E00-279, University of California at Berkeley.
  2. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  3. Ignacio Palacios-Huerta & Roberto Serrano & Oscar Volig, 2001. "Rejecting Small Gambles under Expected Utility: a Comment on Rabin," Working Papers 2001-05, Brown University, Department of Economics.
  4. Antoni Bosch-Domènech & Joaquim Silvestre, 2006. "Risk aversion and embedding bias," Economics Working Papers 934, Department of Economics and Business, Universitat Pompeu Fabra.
  5. Antoni Bosch-Domènech & Joaquim Silvestre, 2003. "Do the eealthy risk more money? An experimental comparison," Economics Working Papers 692, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 2005.
  6. William Harbaugh & Kate Krause & Lise Vesterlund, 2002. "Risk Attitudes of Children and Adults: Choices Over Small and Large Probability Gains and Losses," Experimental Economics, Springer, vol. 5(1), pages 53-84, June.
  7. Bosch-Domènech, Antoni & Silvestre, Joaquim, 2010. "Averting risk in the face of large losses: Bernoulli vs. Tversky and Kahneman," Economics Letters, Elsevier, vol. 107(2), pages 180-182, May.
  8. Harry Markowitz, 1952. "The Utility of Wealth," Journal of Political Economy, University of Chicago Press, vol. 60, pages 151.
  9. Drazen Prelec & George Loewenstein, 1991. "Decision Making Over Time and Under Uncertainty: A Common Approach," Management Science, INFORMS, vol. 37(7), pages 770-786, July.
  10. Antoni Bosch-Domènech & Joaquim Silvestre, 2005. "The gain-loss asymmetry and single-self preferences," Economics Working Papers 885, Department of Economics and Business, Universitat Pompeu Fabra.
  11. Bosch-Domenech, Antoni & Silvestre, Joaquim, 1999. "Does risk aversion or attraction depend on income? An experiment," Economics Letters, Elsevier, vol. 65(3), pages 265-273, December.
  12. 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.
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