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Related Experiment Videos

Are decisions under risk malleable?

C Fong1, K McCabe

  • 1Department of Economics, University of Massachusetts, Amherst, MA 01003, USA. fong@artsci.wustl.edu

Proceedings of the National Academy of Sciences of the United States of America
|September 15, 1999
PubMed
Summary

Increased involvement in decision-making processes can decrease the perceived value of outcomes, contrary to the illusion of control. This finding suggests involvement may heighten loss aversion, impacting financial risk-taking behavior.

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Area of Science:

  • Behavioral Economics
  • Decision Theory
  • Psychology

Background:

  • Human decision-making under risk and uncertainty is influenced by process involvement.
  • Expected utility theory and current prospect theory do not fully predict the impact of involvement.
  • Previous studies suggest increased involvement leads to higher valuation of outcomes (illusion of control).

Purpose of the Study:

  • To experimentally investigate how the degree and type of involvement in outcome-generating processes affect decision-making.
  • To test whether involvement increases or decreases the perceived value of uncertain outcomes.
  • To explore the psychological mechanisms underlying the effect of involvement on risk perception.

Main Methods:

  • An experiment was designed to vary the degree and type of participant involvement in lottery procedures.

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  • The design controlled for alternative explanations proposed in prior research on involvement and perceived value.
  • Participant valuation of lottery tickets under different involvement conditions was measured.

    • Main Results:

    • Contrary to the illusion of control, increased involvement led participants to place less value on their lottery tickets.
    • Involvement appears to interact with loss aversion, causing individuals to weigh potential losses more heavily.
    • The study provides novel empirical evidence on the complex relationship between process involvement and risk valuation.

    Conclusions:

    • Process involvement can decrease, rather than increase, the subjective value of uncertain outcomes.
    • Involvement may amplify loss aversion, leading to greater risk aversion.
    • This interaction could explain the pronounced risk aversion observed in certain financial contexts, such as bond investing.