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Challenge Theory: The Structure and Measurement of Risky Binary Choice Behavior

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  • Samuel Shye
  • Ido Haber

Abstract

Challenge Theory (Shye & Haber 2015; 2020) has demonstrated that a newly devised challenge index (CI) attributable to every binary choice problem predicts the popularity of the bold option, the one of lower probability to gain a higher monetary outcome (in a gain problem); and the one of higher probability to lose a lower monetary outcome (in a loss problem). In this paper we show how Facet Theory structures the choice-behavior concept-space and yields rationalized measurements of gambling behavior. The data of this study consist of responses obtained from 126 student, specifying their preferences in 44 risky decision problems. A Faceted Smallest Space Analysis (SSA) of the 44 problems confirmed the hypothesis that the space of binary risky choice problems is partitionable by two binary axial facets- (a) Type of Problem (gain vs. loss); and (b) CI (Low vs. High). Four composite variables, representing the validated constructs- Gain, Loss, High-CI and Low-CI, were processed using Multiple Scaling by Partial Order Scalogram Analysis with base Coordinates (POSAC), leading to a meaningful and intuitively appealing interpretation of two necessary and sufficient gambling-behavior measurement scales.

Suggested Citation

  • Samuel Shye & Ido Haber, 2020. "Challenge Theory: The Structure and Measurement of Risky Binary Choice Behavior," Applied Economics and Finance, Redfame publishing, vol. 7(4), pages 1-12, July.
    • Handle: RePEc:rfa:aefjnl:v:7:y:2020:i:4:p:1-12
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    References listed on IDEAS

    as
    1. Louis Guttman, 1968. "A general nonmetric technique for finding the smallest coordinate space for a configuration of points," Psychometrika, Springer;The Psychometric Society, vol. 33(4), pages 469-506, December.
    2. Samuel Shye & Ido Haber, 2020. "Risk as Challenge: A Dual System Stochastic Model for Binary Choice Behavior," Applied Economics and Finance, Redfame publishing, vol. 7(2), pages 33-50, March.
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    Cited by:

    1. Cherevko, Heorhiy, 2023. "Challenges for Agribusiness Development in Ukraine for the Years of Independence," Roczniki (Annals), Polish Association of Agricultural Economists and Agribusiness - Stowarzyszenie Ekonomistow Rolnictwa e Agrobiznesu (SERiA), vol. 2023(1).

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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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