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Behavioral Biases and Nonadditive Dynamics in Risk Taking: An Experimental Investigation

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  • Jos'e Cl'audio do Nascimento

Abstract

This paper investigates the dynamics of gambling and how they can affect risk-taking behavior in regions not explored by Kahneman and Tversky's Prospect Theory. Specifically, it questions why extreme outcomes do not fit the theory and proposes alternative ways to measure prospects. The paper introduces a measure of contrast between gambles and conducts an experiment to test the hypothesis that individuals prospect gambles with nonadditive dynamics differently. The results suggest a strong bias towards certain options, which challenges the predictions of Kahneman and Tversky's theory.

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  • Jos'e Cl'audio do Nascimento, 2019. "Behavioral Biases and Nonadditive Dynamics in Risk Taking: An Experimental Investigation," Papers 1908.01709, arXiv.org, revised Apr 2023.
    • Handle: RePEc:arx:papers:1908.01709
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    File URL: http://arxiv.org/pdf/1908.01709
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    References listed on IDEAS

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    1. Ole Peters & Murray Gell-Mann, 2014. "Evaluating gambles using dynamics," Papers 1405.0585, arXiv.org, revised Jun 2015.
    2. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    3. 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.
    4. Jos'e Cl'audio do Nascimento, 2019. "Decision-making and Fuzzy Temporal Logic," Papers 1901.01970, arXiv.org, revised Feb 2019.
    5. Ole Peters & Alexander Adamou, 2018. "The time interpretation of expected utility theory," Papers 1801.03680, arXiv.org, revised Feb 2021.
    6. Daniel Kahneman & Amos Tversky, 2013. "Choices, Values, and Frames," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 16, pages 269-278, World Scientific Publishing Co. Pte. Ltd..
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