Money, Kisses, and Electric Shocks: On the Affective Psychology of Risk

Prospect theory's S-shaped weighting function is often said to reflect the psychophysics of chance. We propose an affective rather than psychophysical deconstruction of the weighting function resting on two assumptions. First, preferences depend on the affective reactions associated with potent...

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Bibliographic Details
Published in:Psychological science 2001-05, Vol.12 (3), p.185-190
Main Authors: Rottenstreich, Yuval, Hsee, Christopher K.
Format: Article
Language:English
Subjects:
Adult
Affect
Cash
Choice Behavior
Coupons
Decision making
Female
Financial risk
Hope
Humans
Identity
Lotteries
Male
Models, Psychological
Personal finance
Probability
Prospect theory
Psychophysics
Risk-Taking
Tuition
Values
Weighting functions
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Summary:Prospect theory's S-shaped weighting function is often said to reflect the psychophysics of chance. We propose an affective rather than psychophysical deconstruction of the weighting function resting on two assumptions. First, preferences depend on the affective reactions associated with potential outcomes of a risky choice. Second, even with monetary values controlled, some outcomes are relatively affect-rich and others relatively affect-poor. Although the psychophysical and affective approaches are complementary, the affective approach has one novel implication: Weighting functions will be more S-shaped for lotteries involving affect-rich than affect-poor outcomes. That is, people will be more sensitive to departures from impossibility and certainty but less sensitive to intermediate probability variations for affect-rich outcomes. We corroborated this prediction by observing probability-outcome interactions: An affect-poor prize was preferred over an affect-rich prize under certainty, but the direction of preference reversed under low probability. We suggest that the assumption of probability-outcome independence, adopted by both expected-utility and prospect theory, may hold across outcomes of different monetary values, but not different affective values.
ISSN:0956-7976
1467-9280
DOI:10.1111/1467-9280.00334