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Probability weighting and the 'level' and 'spacing' of outcomes: An experimental study over losses

  • Nathalie Etchart-Vincent

    ()

    (CIRED - Centre International de Recherche sur l'Environnement et le Développement - CIRAD : UMR56 - CNRS : UMR8568 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - AgroParisTech)

The main goal of the experimental study described in this paper is to investigate the sensitivity of probability weighting to the payoff structure of the gambling situation--namely the level of consequences at stake and the spacing between them--in the loss domain. For that purpose, three kinds of gambles are introduced: two kinds of homogeneous gambles (involving either small or large losses), and heterogeneous gambles involving both large and small losses. The findings suggest that at least for moderate/high probability of loss do both 'level' and 'spacing' effects reach significance, with the impact of 'spacing' being both opposite to and stronger than the impact of 'level'. As compared to small-loss gambles, large-loss gambles appear to enhance probabilistic optimism, while heterogeneous gambles tend to increase pessimism.

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Paper provided by HAL in its series Post-Print with number hal-00395876.

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Date of creation: 17 Apr 2009
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Publication status: Published, Journal of Risk and Uncertainty, 2009, 39, 1, 45-63
Handle: RePEc:hal:journl:hal-00395876
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