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Prospect theory (Decision under Risk (PT effects (Isolation Effect…
Prospect theory
Decision under Risk
PT effects
Isolation Effect
Framing
changes of wealth rather than final asset positions
Independence of irrelevant alternatives
Reflection effect
risk seeking in negative domain; risk .... in ... domain
Certainty Effect
Probabilistic Insurance
PT
Editing phase
reformulate options to simplify
subsequent evaluation
Evaluation phase
decision for the prospect with highest value which was computed (editing phase) and then compared
decision weights
sum of DW's less than unity for m
oderate probability gambles
except for very low p
measure the impact of events
on the desirability of prospects
subjective value
measures the value of deviations from the reference point
value function
difference in slope
deviations from reference point!
characteristics
subproportionality
decision weights do add up for very low&high p
subcertainty
higher decision weights for certain outcomes than for corresponding uncertain outcomes
subadditivity
decision weights do not add up to 1
Endowment effect, loss aversion, status quo bias
status quo bias
biases against both
buying and selling
advantage of status quo increases
with the number of alternatives
electric power consumer study
loss aversion
disutility of giving up an object vs
utility of acquiring it
differences ind disadvantages have higher impact than differences on advantages
endowment effect
WTP
WTA
Studies
option attachment
manipulation of option
attachment (elaboration yes/no);
choice yes/no
dep var.: attractiveness rating of the non-chosen option
choosing feels like losing if elaboration takes place
Lecture
Decoy effect