Accession Number : ADA194809
Title : Venture Theory: A Model of Decision Weights.
Descriptive Note : Technical rept.,
Corporate Author : CHICAGO UNIV IL CENTER FOR DECISION RESEARCH
Personal Author(s) : Hogarth, Robin M ; Einhorn, Hillel J
PDF Url : ADA194809
Report Date : Jan 1988
Pagination or Media Count : 49
Abstract : Several theories suggest that people replace probabilities by decision weights when evaluating risky outcomes. This paper proposes a model, called venture theory, of how people assess decision weights. It is assumed that people first anchor on a stated probability and then adjust this by mentally simulating other possible values. The amount of mental simulation is affected both by the extent to which the anchor deviates from the extremes of 0 and 1 (i.e., where there is no uncertainty) and the level of perceived ambiguity concerning the relevant probability. The net effect of the adjustment (i.e., up or down relative to the anchor) reflects the relative weight given in imagination to values above as opposed to below the anchor. This, in turn, is taken to be a function of both individual and situational variables, and in particular, the sign and size of payoffs. Cognitive and motivational factors therefore both play important roles in determining decision weights. Assuming that people evaluate outcomes by a prospect theory value function (Kahneman & Tversky, 1979) and are cautious in the face of risk, predictions are derived concerning attitudes toward risk and ambiguity as functions of different levels of payoffs and probabilities. The results of two experiments are reported.
Descriptors : *DECISION MAKING, *RISK, *MATHEMATICAL MODELS, COGNITION, MENTAL ABILITY, MOTIVATION, PROBABILITY, SIMULATION
Subject Categories : Operations Research
Distribution Statement : APPROVED FOR PUBLIC RELEASE