Reflections on gains and losses: A 2 × 2 × 7 experiment |
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Authors: | Antoni Bosch-Domènech Joaquim Silvestre |
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Institution: | (1) Universitat Pompeu Fabra, and CREA (Centre de Referència en Economia Analítica de la Generalitat de Catalunya), Barcelona, Spain;(2) Department of Economics, University of California, One Shields Avenue, Davis, CA 95616-8578, USA |
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Abstract: | What determines risk attraction or aversion? We experimentally examine three factors: the gain-loss dichotomy, the probabilities (0.2 vs. 0.8), and the money at risk (7 amounts). We find that the majority display risk attraction for small amounts of money, and risk aversion for larger amounts. Yet the frequency of risk attraction varies according to the gain-loss dichotomy and the probabilities. Kahneman and Tversky studied gain-loss reflections. We submit that a reflection can be decomposed into a translation and a probability switch. We find significant translation and switch effects, which are of comparable magnitude, a result that is equidistant from the diverging two popular views inspired by Prospect Theory: the gain-loss asymmetry, and the fourfold pattern. |
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Keywords: | Reflection effect Risk attraction Risk aversion Gains Losses Experiments Prospect theory Fourfold pattern |
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