Modeling the Impact of Control on the Attractiveness of Risk in a Prospect Theory Framework

Many decisions involve a degree of personal control over event outcomes, which is exerted through one's knowledge or skill. In three experiments we investigated differences in decision making between prospects based on a) the outcome of random events and b) the outcome of events characterized by control. In Experiment 1, participants estimated certainty equivalents (CEs) for bets based on either random events or the correctness of their answers to U.S. state population questions across the probability spectrum. In Experiment 2, participants estimated CEs for bets based on random events, answers to U.S. state population questions, or answers to questions about 2007 NCAA football game results. Experiment 3 extended the same procedure as Experiment 1 using a within-subjects design. We modeled data from all experiments in a prospect theory framework to establish psychological mechanisms underlying decision behavior. Participants weighted the probabilities associated with bets characterized by control so as to reflect greater risk attractiveness relative to bets based on random events, as evidenced by more elevated weighting functions under conditions of control. This research elucidates possible cognitive mechanisms behind increased risk taking for decisions characterized by control, and implications for various literatures are discussed.