Probability weighting in different domains: The role of affect,fungibility, and stakes |
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| Institution: | 1. Economic Science Institute, Chapman University, One University Drive, Orange, CA 92866, USA;2. Weatherhead School of Management, Case Western Reserve University, 11119 Bellflower Road, Cleveland, OH 44106, USA;3. Argyros School of Business and Economics & Economic Science Institute, Chapman University, One University Drive, Orange, CA 92866, USA;1. Department of Economics and Finance, University of Wyoming, 1000 E. University Ave., Laramie, WY 82071, United States;2. HUI Research AB, 103 29 Stockholm, Sweden;3. AgriFood Economics Centre, Lund University School of Economics and Management, Box 730, 220 07 Lund, Sweden;4. Department of Food and Resource Economics, University of Copenhagen, Rolighedsvej 25, 1958 Frederiksberg C, Denmark;1. Department of Economics, Catholic University of Milan, Largo Gemelli 1, 20126 Milan, Italy;2. LCSR, National Research University, Higher School of Economics, Russian Federation;3. Department of Economics and Neuro-Mi, University of Milan Bicocca, Piazza dell’Ateneo Nuovo 1, 20126 Milan, Italy;1. Department of Economics, The University of Arizona, United States of America;2. Department of Economics, Lehigh University, United States of America;3. Department of Economics, The Hong Kong University of Science and Technology, Hong Kong |
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| Abstract: | This paper reports the results of a laboratory experiment in which probability weighting functions for risky gains were elicited non-parametrically in over 500 incentivized subjects. I compared probability weights for monetary rewards to two less fungible domains involving vouchers for different types of consumption, inducing stronger or weaker (positive) emotions. The level of stakes was also manipulated. I found that the probability to win monetary rewards was weighted almost linearly in the high stakes condition, the probability to win vouchers associated with stronger positive affect was underweighted and the probability to win affect-poor vouchers was strongly underweighted. Substantial underweighting also prevailed in all three domains in the low stakes condition. |
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| Keywords: | Prospect theory Probability weighting functions Fungibility Affect D81 2360 |
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