### Abstract

Original language | English |
---|---|

Pages (from-to) | 1-22 |

Journal | Theory and Decision |

Volume | 67 |

Issue number | 1 |

Publication status | Published - 2009 |

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*Theory and Decision*, vol. 67, no. 1, pp. 1-22.

**Subjective probability weighting and the discovered preference hypothesis.** / van de Kuilen, G.

Research output: Contribution to journal › Article › Scientific › peer-review

TY - JOUR

T1 - Subjective probability weighting and the discovered preference hypothesis

AU - van de Kuilen, G.

PY - 2009

Y1 - 2009

N2 - Numerous studies have convincingly shown that prospect theory can better describe risky choice behavior than the classical expected utility model because it makes the plausible assumption that risk aversion is driven not only by the degree of sensitivity toward outcomes, but also by the degree of sensitivity toward probabilities. This article presents the results of an experiment aimed at testing whether agents become more sensitive toward probabilities over time when they repeatedly face similar decisions, receive feedback on the consequences of their decisions, and are given ample incentives to reflect on their decisions, as predicted by Plott’s Discovered Preference Hypothesis (DPH). The results of a laboratory experiment with N = 62 participants support this hypothesis. The elicited subjective probability weighting function converges significantly toward linearity when respondents are asked to make repeated choices and are given direct feedback after each choice. Such convergence to linearity is absent in an experimental treatment where respondents are asked to make repeated choices but do not experience the resolution of risk directly after each choice, as predicted by the DPH.

AB - Numerous studies have convincingly shown that prospect theory can better describe risky choice behavior than the classical expected utility model because it makes the plausible assumption that risk aversion is driven not only by the degree of sensitivity toward outcomes, but also by the degree of sensitivity toward probabilities. This article presents the results of an experiment aimed at testing whether agents become more sensitive toward probabilities over time when they repeatedly face similar decisions, receive feedback on the consequences of their decisions, and are given ample incentives to reflect on their decisions, as predicted by Plott’s Discovered Preference Hypothesis (DPH). The results of a laboratory experiment with N = 62 participants support this hypothesis. The elicited subjective probability weighting function converges significantly toward linearity when respondents are asked to make repeated choices and are given direct feedback after each choice. Such convergence to linearity is absent in an experimental treatment where respondents are asked to make repeated choices but do not experience the resolution of risk directly after each choice, as predicted by the DPH.

M3 - Article

VL - 67

SP - 1

EP - 22

JO - Theory and Decision

JF - Theory and Decision

SN - 0040-5833

IS - 1

ER -