Different methods to define utility functions yield different results and engage different neural processes
Although the concept of utility is fundamental to many economic theories, up to now a generally accepted method determining a subject’s utility function is not available. We investigated two methods that are used in economic sciences for describing utility functions by using response-locked event-related potentials in order to assess their neural underpinnings. For defining the certainty equivalent (CE), we used a lottery game with probabilities of 0.5, for identifying the subjects’ utility functions directly a standard bisection task was applied. Although the lottery tasks’ payoffs were only hypothetical, a pronounced negativity was observed resembling the error related negativity (ERN) previously described in action monitoring research, but this occurred only for choices far away from the indifference point between money and lottery. By contrast, the bisection task failed to evoke an ERN irrespective of the responses’ correctness. Based on these findings we are reasoning that only decisions made in the lottery task achieved a level of subjective relevance that activates cognitive-emotional monitoring. In terms of economic sciences, our findings support the view that the bisection method is unaffected by any kind of probability valuation or other parameters related to risk and in combination with the lottery task can, therefore, be used to differentiate between payoff and probability valuation.
|Date of creation:||May 2009|
|Contact details of provider:|| Postal: Universitätsplatz 2, Gebäude W und I, 39106 Magdeburg|
Phone: (0391) 67-18 584
Fax: (0391) 67-12 120
Web page: http://www.ww.uni-magdeburg.de
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Amos Tversky & Daniel Kahneman, 1979.
"Prospect Theory: An Analysis of Decision under Risk,"
Levine's Working Paper Archive
7656, David K. Levine.
- Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
- 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.
- Wulf Albers & Robin Pope & Reinhard Selten & Bodo Vogt, 1999.
"Experimental Evidence for Attractions to Chance,"
Discussion Paper Serie B
461, University of Bonn, Germany.
- Loomes, Graham & Sugden, Robert, 1982. "Regret Theory: An Alternative Theory of Rational Choice under Uncertainty," Economic Journal, Royal Economic Society, vol. 92(368), pages 805-824, December.
When requesting a correction, please mention this item's handle: RePEc:mag:wpaper:09014. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guido Henkel)
If references are entirely missing, you can add them using this form.