Risky Decisions
From MerrimackWiki
Contents |
Experiment Summary
The participant was asked to imagine that they received a bonus of a certain amount of money and could chose between several options: one without risk (either would guarantee a gain of money or loss of money) and one with risk involved (there is a chance to win more money and there is the chance to lose money).
For the risky options, the probability of receiving or losing no money was either 0.1, 0.2, or 0.3. The expected amount of money from the risky option was the same as the actual value from the riskless option. The changes in probability was only to introduce some variability in the choices and was not expected to have any significant impact on people's selections.
The amounts of money were carefully constructed, especially across the gain and loss conditions. In particular, the amount of money the participant would end with on a gain trial had a matching trial among the loss trials that would end with the same amount of money. If people's choices were driven by a need for a certain amount of money, there should be no difference between gain and loss trials.
Independent Variable(s)
Whether the problem presented the options as gains or losses.
Dependent Measure(s)
Whether the participant chose an option without risk or an option where risk was involved.
Expected Results
Past research has shown that people treat risk differently for choices involving gains than for choices involving losses. In particular, when the choices are gains, people tend to be risk-avoiding. That is, they prefer a sure gain to a risky (probabilistic) gain. On the other hand, people tend to be risk-seeking when the choices involve losses. That is, they prefer a risky loss (that might lead to no loss at all) than a sure loss of a certain amount.
Theoretical Significance
People are more likely to avoid risk when they are guaranteed a gain. In contrast, when a participant makes a decision that involves possible losses, they are likely to take a risk rather than a sure loss of a certain amount.
