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The use of multiple reference points in risky decision making
Author(s) -
Koop Gregory J.,
Johnson Joseph G.
Publication year - 2012
Publication title -
journal of behavioral decision making
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.136
H-Index - 76
eISSN - 1099-0771
pISSN - 0894-3257
DOI - 10.1002/bdm.713
Subject(s) - prospect theory , status quo , salience (neuroscience) , loss aversion , value (mathematics) , expected utility hypothesis , function (biology) , status quo bias , perception , task (project management) , decision theory , property (philosophy) , psychology , social psychology , mathematical economics , computer science , microeconomics , economics , cognitive psychology , epistemology , philosophy , management , machine learning , evolutionary biology , neuroscience , market economy , biology
Among psychologists and economists, prospect theory continues to be one of the most popular models of decision making. The theory's key property is reference dependence; specifically, how an individual's perception of loss or gain is dependent upon their starting point (i.e., the status quo). Although prospect theory is widely accepted, other authors have sought the inclusion of reference points besides the status quo. Initially these extensions focused on the importance of single reference points such as goals. More recently, authors have explained choice data by including multiple reference points within the value function. Multiple‐reference‐point theories generally assume that many choice situations possess an implicit or explicit goal, or point an individual will strive to obtain, and/or a minimum requirement (i.e., a “lower bound”) above which an individual will strive to stay. In two experiments, we present evidence that individuals can utilize the minimum requirement, status quo, and goal within a single risky decision task. Participants most often chose to maximize their chance of reaching reference points even when that decision was riskier, resulted in lower expected value, resulted in lower expected utility, or ran contrary to the predictions of prospect theory. Furthermore, salience and uncertainty moderated the use of goals and minimum requirements as reference points. Copyright © 2010 John Wiley & Sons, Ltd.