The tri-reference point (TRP) theory takes into account minimum requirements (MR), the status quo (SQ), and goals (G) in decision making under risk. The 3 reference points demarcate risky outcomes and risk perception into 4 functional regions: success (expected value of x ≥ G), gain (SQ < × < G), loss (MR ≤ x < SQ), and failure (x < MR). The psychological impact of achieving or failing to achieve these reference points is rank ordered as MR > G > SQ. We present TRP assumptions and value functions and a mathematical formalization of the theory. We conducted empirical tests of crucial TRP predictions using both explicit and implicit reference points. We show that decision makers consider both G and MR and give greater weight to MR than G, indicating failure aversion (i.e., the disutility of a failure is greater than the utility of a success in the same task) in addition to loss aversion (i.e., the disutility of a loss is greater than the utility of the same amount of gain). Captured by a double-S shaped value function with 3 inflection points, risk preferences switched between risk seeking and risk aversion when the distribution of a gamble straddled a different reference point. The existence of MR (not G) significantly shifted choice preference toward risk aversion even when the outcome distribution of a gamble was well above the MR. Single reference point based models such as prospect theory cannot consistently account for these findings. The TRP theory provides simple guidelines for evaluating risky choices for individuals and organizational management.
Previous research on framing effects has largely focused on how choice information framed by external sources influences the response of a decision maker. This research examined how decision makers framed choice options and how the hedonic tone of selfframing influenced their risk preference. By using pie charts and a complementary sentence-completion task in Experiment 1, participants were able to interpret and frame the expected choice outcomes themselves before making a choice between a sure option and a gamble in either a life-death or a monetary problem. Each of these self-frames (phrases) was then rated by a group of independent judges in terms of its hedonic tone. The hedonic tone of self-frames was mostly positive and was more positive in the lifedeath than the monetary context, suggesting a motivational function of self-framing. However, positive outcomes were still more likely to be framed positively than negative outcomes. In Experiment 2, choice outcomes were depicted with a whole-pie chart instead of a pie slice in order to emphasize positive and negative outcomes equally. The results showed that the hedonic tone of self-framing was still largely positive and more positive in the life domain than the monetary domain. However, compared to Experiment 1, the risk preference in the life-death domain was reversed, showing an outcome salience effect: when the pie-slice chart emphasized only survival outcomes, participants were more risk taking under positive hedonic frames whereas when the whole-pie chart depicted both survival and mortality outcomes, they became risk averse under positive frames. In sum, self-framing reflected a positive bias in encoding risk information and affected the risk preference of the decision maker. Like the tone of voice used in communication, the hedonic tone of self-framing, either positive or negative, can affect risk perception of a choice problem.
This study examines the effects of perceived group context on subjects' risk attitudes and their sensitivity to the framing of choice outcomes in a 'life-death' decision problem. It seeks to uncover the psychological mechanisms underlying decision-making biases by systematically manipulating the decision context in which the 'lifeedeath' problem was described. The study revealed that subjects' risk preferences varied as a function of the experimental manipulations. Previously observed reversals in preferences (framing effects) appeared in largegroup contexts and disappeared in small-group and family contexts. When considering the fate of small groups, subjects unambiguously favored the probabilistic outcome, no matter how the 'life-death' decision problem was framed. The empirical data obtained from the present study suggest that human choice patterns are behaviorally distinguishable across large-group, small-group, and family social contexts.Empirical studies on human judgment and decision-making behavior over the last 30 years have shown a persistent inconsistency between expected utility theory and decision behaviors and systematic biases from normative utility axioms in a number of decision-making areas. To account for these empirical findings, many investigators have taken a heuristic approach to human decision making. Examples of proposed cognitive heuristics for either human choice or judgmental behavior include satisficing strategies (Simon, 1956), the representativeness heuristic, the availability heuristic, the 'as if heuristic, the anchoring heuristic (Kahneman and Tversky, 1973;Tversky and Kahneman, 1973, 1974), the conjunctive strategy (Einhorn, 197 l), the compensatory and noncot7ipensatory strategies (Payne, 1976(Payne, , 1982, and the elimination by aspects strategy (Tversky, 1972a. b). Inherent in the heuristic approach is the idea that in coping with uncertainty human decision makers make use of judgmental heuristics which serve as general strategies for simplifying complex decision tasks. These cognitive heuristics are viewed as information-processing shortcuts which, although normally efficient ' The two subject groups with the contextual size of 120 were added at the end of the experiment in order to examine the split point between risk-averse and risk-taking preferences along the contextual size dimension. X . T . Wang and V . S . Johnston Perceived Social Context and Risk Preference 293Tversky, A. and Kahneman, D. 'Advances in prospect theory: Cumulative representation of uncertainty', Journal Wagenaar, W. A., Keren, G. and Lichtenstein, S. 'Islanders and hostages: Deep and surface structures of decision of' Risk and Uncertainty, 5 (1992). 297-323. problems', Acta Psvchologica, 67 (1988). 175-89. Aurhors ' biographies: X. T. Wang is an Assistant Professor in the Psychology Department at the University of South Dakota. His recent research interests include behavioral studies of human judgment and decision making, computer simulations of choice strategies using a genetic algorithm, a...
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