Translation of Gambles and Aspiration Level Effects in Risky Choice Behavior.
DUKE UNIV DURHAM N C GRADUATE SCHOOL OF BUSINESS ADMINISTRATION
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Two recent models of risky decision making have emphasized the importance of a target return or a reference point in determining preferences and choices among gambles. The target return and reference point concepts represent variations on an old idea in theories of decision making level of aspiration. Additional evidence on the need to incorporate an aspiration level type of concept in the analysis of risky choice behavior is presented. In three experiments, the relationship of pairs of gambles to an assumed reference point was varied by adding or subtracting a constant amount of money from all outcomes. The results demonstrate that such translations of outcomes can result in the reversal of choice within pairs of gambles. The effect of such translations on choice depended on whether the size of the translation was sufficient to insure that one gamble in a pair had outcome values either all above or all below the reference point, while the other gamble had outcome values both above and below the reference point. The results are discussed in terms of the Fishburn and Kahneman-Tversky models, as well as other theories of risky decision making. A model of the effects of a reference point on risky choice behavior is presented.
- Administration and Management