The role of forgone opportunities in decision making under risk
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Other documents of the author: Barreda-Tarrazona, Iván; Jaramillo-Gutiérrez, Ainhoa; Navarro Martínez, Daniel; Sabater-Grande, Gerardo
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comunitat-uji-handle2:10234/8643
comunitat-uji-handle3:10234/8644
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Title
The role of forgone opportunities in decision making under riskAuthor (s)
Date
2014-10Publisher
Springer VerlagBibliographic citation
BARREDA-TARRAZONA, Ivan, et al. The role of forgone opportunities in decision making under risk. Journal of Risk and Uncertainty, 2014, 49.2: 167-188.Type
info:eu-repo/semantics/articlePublisher version
http://link.springer.com/article/10.1007/s11166-014-9201-4Version
info:eu-repo/semantics/submittedVersionSubject
Abstract
We present two experiments designed to study the role of forgone opportunities in decision making under risk. In the first one, we face individuals with a dynamic environment in which their decisions, together with ... [+]
We present two experiments designed to study the role of forgone opportunities in decision making under risk. In the first one, we face individuals with a dynamic environment in which their decisions, together with chance, determine their future options. We find that previously faced opportunities influence subsequent choices in predictable ways. Having faced worse options in the past significantly increases individuals’ risk aversion and having faced better options reduces it. These patterns are at odds with most existing decision theories, including Expected Utility Theory and standard implementations of Prospect Theory, the dominant models of economic decision making. In our second experiment, we present participants with a similar decision environment, but in which the opportunities they face do not depend on their past choices. The effect of previously faced options on decision behavior in this environment is considerably reduced. This shows that being responsible for forgoing opportunities is an important factor in their influence on behavior, which underscores the relevance of emotions linked to counterfactual thinking, like regret or satisfaction. These results highlight that theories formulated in cognitive terms are not enough to provide an adequate account of the role of forgone opportunities in decision making under risk and uncertainty. [-]
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Journal of Risk and Uncertainty October 2014, Volume 49, Issue 2Rights
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