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A Pedagogical Note on Risk Framing
Author(s) -
Barth Michael M.,
Hatem John J.,
Yang Bill Z.
Publication year - 2004
Publication title -
risk management and insurance review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.386
H-Index - 16
eISSN - 1540-6296
pISSN - 1098-1616
DOI - 10.1111/j.1098-1616.2004.00042.x
Subject(s) - prospect theory , framing (construction) , framing effect , expected utility hypothesis , actuarial science , risk management , decision theory , risk seeking , economics , psychology , microeconomics , social psychology , mathematical economics , management , structural engineering , persuasion , engineering
This article presents several classroom games that help illustrate the effect of risk framing on choices under uncertainty. These games are presented in the context of Kahneman and Tversky's prospect theory that is an alternative to the traditional expected utility theory. Expected utility theory is a prescriptive model of decision making that explains how people should react to risk, while prospect theory is a descriptive model that explains how people actually do react to risk. These classroom games can be used in introductory risk management courses, insurance courses, and financial risk management courses to help students to understand the effect of context on choices made under uncertainty. Although results from actual classroom experiments are included, these results are not meant to be indicative of normal results but are rather illustrative of the type of results that may arise when alternative framing contexts are used.