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Uncovering Correlation Sensitivity in Decision Making Under Risk

Author

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  • Moritz Loewenfeld

    (Universität Wien = University of Vienna)

  • Jiakun Zheng

    (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

Abstract

Allowing risk preferences to depend on the correlation between lottery outcomes can explain behavioral anomalies, while empirical evidence is limited and mixed. Using the framework of correlation sensitivity, we classify preferences into three types and adapt a choice task to categorize subjects. Experiments show that aggregate choices exhibit correlation sensitivity opposite to regret and salience theory predictions. Clustering analysis reveals that a correlation-sensitive minority drives these patterns, while most subjects display no sensitivity. We further disentangle deliberate within-state comparisons from incidental payoff comparisons, finding that both contribute to correlation sensitivity, with deliberate comparisons exerting slightly stronger effects.

Suggested Citation

  • Moritz Loewenfeld & Jiakun Zheng, 2025. "Uncovering Correlation Sensitivity in Decision Making Under Risk," Post-Print hal-05346525, HAL.
    • Handle: RePEc:hal:journl:hal-05346525
    DOI: 10.1111/iere.70035
    Note: View the original document on HAL open archive server: https://hal.science/hal-05346525v1
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