Between Hope and Fear: The Psychology of Risk

Lopes, Lola L.

doi:10.1016/s0065-2601(08)60416-5

Cited by 964 publications

(680 citation statements)

References 45 publications

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“…Sullivan and Kida (1995) note that individuals evaluate alternatives relative to an outcome reference to estimate gains and losses. Outcomes preferable to a reference outcome are gains; those less desirable than the reference outcome are losses (Yates and Stone, 1992a;Lopes, 1987). While there are several types of reference outcomes, target reference outcomes are particularly germane to our study of supply disruption risk.…”

Section: Literature Reviewmentioning

confidence: 99%

Buyer perceptions of supply disruption risk: A behavioral view and empirical assessment

Ellis

Henry

Shockley

2009

J of Ops Management

306

283

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As supply chains become more complex, firms face increasing risks of supply disruptions. The process through which buyers make decisions in the face of these risks, however, has not been explored. Despite research highlighting the importance of behavioral approaches to risk, there is limited research that applies these views of risk in the supply chain literature. This paper addresses this gap by drawing on behavioral risk theory to investigate the causal relationships amongst situation, representations of risk, and decision‐making within the purchasing domain. We operationalize and explore the relationship between three representations of supply disruption risk: magnitude of supply disruption, probability of supply disruption, and overall supply disruption risk. Additionally, we draw on exchange theories to identify product and market factors that impact buyers’ perceptions of the probability and magnitude of supply disruption. Finally, we look at how representations of risk affect the decision to seek alternative sources of supply. We test our model using data collected from 223 purchasing managers and buyers of direct materials. Our results show that both the probability and the magnitude of supply disruption are important to buyers’ overall perceptions of supply disruption risk. We also find that product and market situational factors impact perceptions of risk, but they are best understood through their impact on perceptions of probability and magnitude. Finally, we find that decisions are based on assessments of overall risk. These findings provide insight into the decision‐making process and show that all three representations of risk are necessary for fully understanding risky decision‐making with respect to supply disruptions.

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Section: Literature Reviewmentioning

confidence: 99%

Buyer perceptions of supply disruption risk: A behavioral view and empirical assessment

Ellis

Henry

Shockley

2009

J of Ops Management

306

283

View full text Add to dashboard Cite

show abstract

“…Another theory that incorporates thresholds (i.e., aspiration levels) in a theory of choice is security-potential/aspiration theory (Lopes, 1987(Lopes, , 1995 for details, see Lopes & Oden, 1999). Security-potential/aspiration theory is a six-parameter theory, which integrates two logically and psychologically independent criteria.…”

Section: The Contestantsmentioning

confidence: 99%

The Priority Heuristic: Making Choices Without Trade-offs

Brandstätter¹,

Gigerenzer²,

Hertwig³

2011

Heuristics

100

182

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Bernoulli's framework of expected utility serves as a model for various psychological processes, including motivation, moral sense, attitudes, and decision making. To account for evidence at variance with expected utility, we generalize the framework of fast and frugal heuristics from inferences to preferences. The priority heuristic predicts (i) Allais' paradox, (ii) risk aversion for gains if probabilities are high, (iii) risk seeking for gains if probabilities are low (lottery tickets), (iv) risk aversion for losses if probabilities are low (buying insurance), (v) risk seeking for losses if probabilities are high, (vi) certainty effect, (vii) possibility effect, and (viii) intransitivities. We test how accurately the heuristic predicts people's choices, compared to previously proposed heuristics and three modifications of expected utility theory: security-potential/aspiration theory, transfer-of-attention-exchange model, and cumulative prospect theory.Conventional wisdom tells us that making decisions becomes difficult whenever multiple priorities, appetites, goals, values, or simply the attributes of the alternative options are in conflict. Should one undergo a medical treatment that has some chance of curing a lifethreatening illness but comes with the risk of debilitating side effects? Should one report a crime committed by a friend? Should one buy an expensive, high-quality camera or an inexpensive, low-quality camera? How do people resolve conflicts, ranging from the prosaic to the profound?The common denominator of many theories of human behavior is the premise that conflicts are mastered by making trade-offs. Since the Enlightenment, it has been believed that weighting and summing are the processes by which such trade-offs can be made in a rational way. Numerous theories of human behavior-including expected value theory, expected utility theory, prospect theory, Benjamin Franklin's moral algebra, theories of moral sense such as utilitarianism and consequentionalism (Gigerenzer, 2004), theories of risk taking (e.g., Wigfield & Eccles, 1992), motivational theories of achievement (Atkinson, 1957) and work behavior (e.g., Vroom, 1964), theories of social learning (Rotter, 1954), theories of attitude formation (e.g., Fishbein & Ajzen, 1975), and theories of health behavior (e.g., Becker, 1974; for a review see Heckhausen, 1991)-rest on these two processes. Take how expected utility theory would account for the choice between two investment plans as an example. The reasons for choosing are often negatively correlated with one another. High returns go with low probabilities, and low returns go with high probabilities. According to a common argument, negative correlations between reasons cause people to experience conflict, leading them to make trade-offs (Shanteau & Thomas, 2000). Europe PMC Funders Author ManuscriptsEurope PMC Funders Author Manuscripts utility, the trade-off between investment plans is performed by weighting the utility of the respective monetary outcomes by their probabilities and...

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“…In Figure 6 gain and loss discount rates appear to be converging, but Figure 7 shows that once the implicit risk rate has been extracted, gain and loss rates appear on visual inspection to decline at about the same pace. (Lopes, 1987;March & Shapira, 1987). It now appears that payoff timing is a dimension of context that influences risk preferences.…”

Section: S-shaped Value Functionmentioning

confidence: 99%

“…It now appears that payoff timing is a dimension of context that influences risk preferences. March and Shapira (1987) (Mischel & Ebbesen, 1970;Mischel, Grusec, & Masters, 1969;Lopes, 1987;March & Shapira, 1987 (March & Shapira, 1987, p. 1412Lopes, 1987 …”

Section: S-shaped Value Functionmentioning

confidence: 99%