By Evelyn Stommel
ISBN-10: 365800634X
ISBN-13: 9783658006341
ISBN-10: 3658006358
ISBN-13: 9783658006358
Most of our day-by-day judgements are made lower than uncertainty and threat, with out entire information regarding all correct points. all of us always make such judgements, from the best “should I take my raincoat today?” to extra critical examples, comparable to these on funding and portfolio judgements, preserving of stocks, assurance styles, or negotiation strategies. inside those occasions, the bounded rationality of people and associations in the direction of danger and uncertainty is embedded. The valuable concept underlying this examine is prospect concept, an enough version to foretell the true and in most cases bounded rationality of human habit given definite incentives, personal tastes, and constraints.
Evelyn Stommel investigates an important query inside of behavioral economics, specifically the study on reference issues inside human selection making procedures. in response to experimental investigations, she focuses 3 key demanding situations: what constitutes a reference element, the method of the formation of a reference aspect, and components influencing the formation of reference points.
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Extra resources for Reference-Dependent Preferences: A Theoretical and Experimental Investigation of Individual Reference-Point Formation
Example text
Payne (2005) investigated choice patterns for mixed gambles and observed inconsistencies with cumulative prospect theory, demonstrating that decision makers sometimes use a heuristic of selecting the mixed gamble with the highest probability of a gain. Wu (1994) observed systematic violations of the ordinal independence axiom, which is necessary for cumulative prospect theory (Tversky & Kahneman, 1992). He assumed that if an outcome probability pair is common to both gambles, it is cancelled when the commonality is transparent.
March (1988) and March and Shapira (1987) argued that the reference point is a function of an aspiration level and a critical survival point. Managers tend to show more risk-seeking behavior when faced with the failure to meet their targets than when their targets are secure (March & Shapira, 1987). Furthermore, other theories have considered aspiration levels in their modeling. For instance, Lopes (1987) assumed in her security potential/aspirations theory that choice options are evaluated based on their probabilities of reaching a goal.
The preferred length of the health sequence was based on tracked expectations about how the sequences would realistically occur and which one would improve over time. Hack and Lammers (2011) found additional empirical support within indirect and direct approaches for the influence of expectations on reference points. All their findings were consistent across both approaches. More importantly, similar to Arkes et al. (2008) they were the first to examine directly the role of expectations in the adaptation of reference points in the domain of gains.