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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JEL Classification C91 . D81
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Bosch-Domènech, A., Silvestre, J. Reflections on gains and losses: A 2 × 2 × 7 experiment. J Risk Uncertainty 33, 217–235 (2006). https://doi.org/10.1007/s11166-006-0333-z
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DOI: https://doi.org/10.1007/s11166-006-0333-z