Valuation of Vague Prospects with Mixed Outcomes

Budescu, David V.; Templin, Sara

doi:10.1007/978-0-387-77131-1_11

Cited by 5 publications

(11 citation statements)

References 44 publications

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“…The GLS violation rates for the CE method were 8.9% using the strict classification and 15.3% using the lenient classification. These were close to the rates reported by Templin and Budescu (; 6.7% and 17.3%, respectively). To determine if the elicitation method affected GLS violations we compared the rate and nature of violations under the two methods both between and within subjects.…”

Section: Resultssupporting

confidence: 90%

“…To determine if the elicitation method affected GLS violations we compared the rate and nature of violations under the two methods both between and within subjects. The between subjects analysis (i.e., same‐method groups) replicated the analysis from previous studies (Wu & Markle, ; Templin & Budescu, ), which used only one elicitation method. The within subjects comparisons (i.e., mixed‐methods groups) allowed for a more powerful investigation of the method effects.…”

Section: Resultssupporting

confidence: 69%

“…Most empirical tests of PT and CPT have focused on positive and/or negative prospects and did not allow for the proper investigation of GLS. Although there has been recent interest in mixed prospects (e.g., Birnbaum, ; Chechile & Butler, ; Ert & Yechiam, ; Levy & Levy, ; Payne, ; Wehrung, ), there are only a few direct tests of GLS (e.g., Birnbaum & Bahra, ; Budescu & Templin, ; Wu & Markle, ). In anticipation of our empirical work and to be consistent with the study by Wu and Markle (), we focus on pairs of mixed prospects labeled H and L to denote the relationships between their outcomes: The H prospects have higher outcomes (larger gains and less severe losses) and lower probabilities of winning than the L prospects.…”

Section: Gain–loss Separabilitymentioning

confidence: 99%

“…Budescu and Templin () assessed the impact of vagueness, defined as imprecision of the probabilities and/or outcomes, by eliciting and analyzing the CE of prospects. Forty subjects evaluated 162 prospects, and Templin and Budescu () inferred preferences from the CEs from these prospects: A prospect with the higher CE was said to be preferred over any prospect that had a lower CE.…”

Section: Gain–loss Separabilitymentioning

confidence: 99%

See 3 more Smart Citations

Revisiting the Gain–Loss Separability Assumption in Prospect Theory

Por

Budescu

2012

Behavioral Decision Making

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A fundamental assumption of prospect theory is gain-loss separability (GLS)-the assertion that the overall utility of a prospect can be expressed as a function of the utilities of its positive and negative components. Violations of GLS may potentially limit the generalization of results from studies of single-domain prospects to mixed prospects and systematically distort the predictions of the theory. Violations also have implications for how choices with positive and negative components should be presented to decision makers. Previous studies, using different elicitation methods, have documented different rates, and types, of systematic violations of GLS. We discuss the differences between two specific elicitation methods-binary choice and certainty equivalents-and report results of a new study of GLS using both methods and randomly generated prospects. We compare the extent and nature of GLS violations under the two elicitation methods using between-subject and within-subject analyses. We find (i) systematic violations of GLS under both methods, (ii) higher rates of violations under choice, (iii) higher sensitivity to the outcomes for the certainty equivalents, which is consistent with the predictions of the scale-compatibility hypothesis, and (iv) different patterns of violations under the two methods, which are explained by method-specific preferences. We discuss the psychological mechanisms underlying the findings and the implications for presenting information with gain and loss components.

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Section: Resultssupporting

confidence: 90%

Section: Resultssupporting

confidence: 69%

Section: Gain–loss Separabilitymentioning

confidence: 99%

Section: Gain–loss Separabilitymentioning

confidence: 99%

See 2 more Smart Citations

Revisiting the Gain–Loss Separability Assumption in Prospect Theory

Por

Budescu

2012

Behavioral Decision Making

Self Cite

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show abstract

“…As Table shows, the picture was not very clear with respect to attitudes toward imprecise losses for current lotteries. A recent study by Budescu and Templin () extended these findings to mixed lotteries with precise/imprecise outcomes and found that vagueness attitudes were less pronounced for mixed lotteries, compared with cases with only positive or negative outcomes. For future research, it is worthwhile to examine vagueness attitudes toward losses and mixed lotteries under time delay.…”

Section: Discussion Of Resultsmentioning

confidence: 88%

The Effect of Temporal Distance on Attitudes toward Imprecise Probabilities and Imprecise Outcomes

Onay

La-ornual

Öncüler

2012

Behavioral Decision Making

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Many personal, managerial, and societal decisions involve uncertain or ambiguous consequences that will occur in the future. Yet, previous empirical research on ambiguity preferences has focused mainly on decisions with immediate outcomes. To close this gap in the literature, this paper examines ambiguity attitudes toward future prospects, particularly how they may differ from the attitudes toward comparable prospects in the present. On the basis of a recent paradigm, we first distinguish between two types of ambiguity: imprecise probabilities and imprecise outcomes. Then, in accordance with construal level theory, which shows that temporal distance increases the relative importance of outcomes over probabilities in evaluating prospects, we conjecture that temporal distance would moderate attitudes toward imprecise probabilities but amplify attitudes toward imprecise outcomes. Through a series of experiments, we demonstrate that when the prospects are in the future, individuals are less averse toward imprecise probabilities and more seeking toward imprecise outcomes. However, the effect is most prominent for prospects where both the probability and outcome dimensions are concurrently imprecise. The paper ends with a discussion on how dimension salience may have contributed to this result. Copyright © 2012 John Wiley & Sons, Ltd.

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When do consumers favor overly precise information about investment returns?

Batteux¹,

Bilovich²,

Khon³

et al. 2023

Journal of Experimental Psychology: Applied

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Consumers are often shown investment returns with high levels of precision, which could lead them to misunderstand the inherent uncertainty. We test whether consumers are drawn to precision—that is offset the uncertainty in investment decisions by over-relying on precise numerical information. Five incentivized experiments compared decisions when expected growth is presented in precise forecasts as opposed to ranges. Consumers are more likely to prefer and invest more in precise forecasts when they are evaluated jointly with ranges and when the range features a potential loss. Under these circumstances, precise forecasts give consumers more confidence to invest. This effect holds when consumers are told investment returns are uncertain. On the other hand, experiencing discrepancies between expected and actual growth dissipates the preference for precise forecasts. We identify conditions under which consumers are more likely to favor precise forecasts and how this could be avoided if necessary.

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Valuation of Vague Prospects with Mixed Outcomes

Cited by 5 publications

References 44 publications

Revisiting the Gain–Loss Separability Assumption in Prospect Theory

Revisiting the Gain–Loss Separability Assumption in Prospect Theory

The Effect of Temporal Distance on Attitudes toward Imprecise Probabilities and Imprecise Outcomes

When do consumers favor overly precise information about investment returns?

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