Good Times, Bad Times: Reversal of risk preferences

Einav Hart*, Yaakov Kareev, Judith Avrahami

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

6 Scopus citations

Abstract

In many situations, one has to choose between risky alternatives, based only on one's past experience with these alternatives. Such decisions can be made in more-or less-benevolent states of the world. Predictions concerning 2 crucial aspects of choice behavior-the overall probability of choosing the riskier alternative and the round-toround choice dynamics-depend on how one evaluates one's payoff: whether in its own right, compared with possible outcomes within the chosen alternative (which could result in disappointment), or compared with foregone outcomes, those of other, unchosen, alternatives (which could result in regret). In 2 experiments, subjects made repeated, incentivized choices between 2 gambles, 1 riskier than the other, neither offering a sure amount. We explored whether and how choices are affected by the state-of-world in which they are made. States were manipulated both between-subjects (Experiment 1, N = 144) and within-subjects (Experiment 2, N = 132). We observed a significant effect of state on overall choice probability: In more benevolent states, subjects tended to choose the riskier alternative, and vice versa in worse states. Choice dynamics were similar across states and were most strongly affected by reactions to the forgone payoff. These patterns of results are in line with a regret-based account.

Original languageEnglish
Pages (from-to)132-145
Number of pages14
JournalDecision
Volume3
Issue number2
DOIs
StatePublished - 2016

Bibliographical note

Publisher Copyright:
© 2015 American Psychological Association.

Keywords

  • Counterfactual outcomes
  • Disappointment
  • Regret
  • Risky choice

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