An Empirical Study On The Effect Of Prospect Configuration On Preferences Under Risk

Behavior under risk widely exists in real society.How to describe accurately,explain reasonably,predict precisely,and guide actual risk behavior in a standardized manner has always been a topic of concern in the academic world.To overcome the shortcomings of traditional expected utility theory,Kahneman and Tversky proposed high-profile prospect theory from the standpoint of bounded rationality in behavior,including original prospect theory and cumulative prospect theory.Academic circles at home and abroad universally recognize it as the most influential and guiding descriptive theory on decision under risk to date.Nevertheless,it has also been proved by scholars from different perspectives that can not satisfactorily explain folks’ actual risk behavior,and there are academic differences between two theories that have not been clarified yet.Research has only found that preferences under risk are prospect configuration dependent,but how on earth prospect configuration affects risk preferences is lack of further interpretation.Therefore,apply empirical methods to explore the internal mechanism of prospect configuration affecting preferences under risk,and to explore possible explaining paths for academic differences,hoping to provide useful enlightenment for improving and applying prospect theory.Surrounding how prospect configuration affects preferences under risk,this thesis systematically conducts three studies.The first study aims to verify the effect of prospect configuration on probability weighting.The probability weighting function is the core component of prospect theory.Previous studies have explored influence factors of probability weighting from various dimensions such as prospect outcomes,decision scenarios,and decision-makers.However,so far,no research has been found to explore influence factors of probability weighting in the prospect probability dimension.Prospect configuration refers to the shape of probability distribution of a limited number of ordered prospect outcomes.Previous studies have only found that prospect configuration affects risk preferences,but there is a lack of mechanism explanation.Therefore,to further explore the internal mechanism of prospect configuration affecting risk preferences,this study is to verify the effect of prospect configuration on probability weighting as a breakthrough point.With the help of semi-parametric,non-parametric,and parametric procedures of eliciting probability weights,three behavioral experiments are conducted to compare probability weights of the same probability under different types of prospect configuration.The results indicate that,both on the domain of gains and losses,at least for small probabilities,prospect configuration significantly affects decision-makers’ probability weighting,and the effect is regulated by the probability level and the outcome domain.Analyzing from a perspective of the cognitive psychological process of decision,when making choices,prospect configuration affects the attention allocation of decision-makers,thereby affects the relative importance of probability events,hence affects decision-makers’ weighting of probability events,ultimately affects actual risk behavior.This study not only enriches research on influence factors of probability weighting by mining a new factor in the prospect probability dimension,deepens the understanding of generation rules of probability weights,suggests that in the future,prospect theory needs to consider the independent variable of prospect configuration when using probability weighting functions,but also further deepens the understanding of how prospect configuration affects preferences under risk by revealing that it is via affecting decision-makers’ probability weighting.The second study aims to verify the effect of prospect configuration on the feature of risk decision weights(sub-certainty,certainty or super-certainty).Original prospect theory follows sub-certainty,namely the sum of decision weights of a prospect is less than one,however as a generalization and development of it,cumulative prospect theory does not adhere to this feature.The existing relevant research has not yet clarified this academic divergence.Due to the close relevance between the quality of certainty or sub(super)-certainty and the weighting function of prospect theory,and the already confirmation of the effect of prospect configuration on decision-makers’ probability weighting,direct at the difference on the feature of risk decision weights,targeting pure prospects with two outcomes,introducing a new research perspective of the independent variable of prospect configuration,and with the help of semi-parametric,non-parametric,and parametric procedures of eliciting decision weights,this study conducts three behavioral experiments to explore the features of decision weights reflected by actual behavior under different types of prospect configuration,and to explore the correlation between the characteristics of prospect configuration and the features of decision weights.The results indicate that to pure prospects with two outcomes,in both the gain and loss domain,prospect configuration affects the feature of risk decision weights by influencing decision-makers’ probability weighting.There exists a correlation between the characteristics of prospect configuration and the features of decision weights.That is,when prospect configuration is skewed,decision makers’ actual behavior accords with super-certainty,while when prospect configuration is symmetric or approximately symmetric,decision makers’ actual behavior accords with sub-certainty.Based on this,from the perspective of prospect configuration,a possible explaining path is provided for this divergence:when prospect configuration is skewed,the feature of decision weights conforms to super-certainty,while when prospect configuration is symmetric or approximately symmetric,the feature of decision weights conforms to sub-certainty.This study not only further expands the understanding of how prospect configuration affects preferences under risk,but also provides a new perspective and a new interpretation for clarifying the divergence on the feature of decision weights,enlightening that in the future,prospect theory should refine specification about the feature of decision weights according to the type of prospect configuration.The third study aims to verify the effect of prospect configuration on the applicability of composition rules of prospect value.Although cumulative prospect theory inherits main theoretical ideas of original prospect theory,they differ in the composition rule of prospect value.Previous studies have not yet clarified this academic disagreement.The difference between two theories is essentially about how to assign decision weights.Specifically,two models use different decision weights to the middle outcome when modeling the value of a prospect with three outcomes.With the already confirmation of the effect of prospect configuration on decision-makers’ probability weighting,direct at the difference on composition rules,targeting non-mixed prospects with three outcomes,introducing a new research perspective of the independent variable of prospect configuration,and using two-step semi-parametric,two-step non-parametric,and parametric procedures of validating composition rules,this study conducts three behavioral experiments to explore the applicability of two theories to actual risk behavior under different types of prospect configuration,and to explore the correlation between prospect configuration features and the applicability of composition rules.The results indicate that to non-mixed prospects with three outcomes,prospect configuration affects the applicability of composition rules by influencing decision-makers’ probability weighting in both the gain and loss domain.There exists a correlation between the characteristics of prospect configuration and the applicability of different theoretical models to actual behavior.That is,when prospect configuration is in a “U” shape,cumulative prospect theory is more suitable for describing actual behavior of decision-makers,while when prospect configuration is in an inverted “U” shape,original prospect theory is more suitable.Based on this,from the perspective of prospect configuration,a possible explaining path is provided for this disagreement.Namely,when prospect configuration is “U” shaped,actual behavior under risk conforms to cumulative prospect theory,while when prospect configuration is inverted “U” shaped,actual behavior under risk conforms to original prospect theory.This study not only once again expands the understanding of how prospect configuration affects preferences under risk,but also provides a new perspective and a new interpretation for clarifying the divergence on composition rules of prospect value,providing inspiration for the application of prospect theory to choose theoretical models according to the type of prospect configuration.In summary,research indicates the effect of prospect configuration on probability weighting,on the feature of risk decision weights,and on the applicability of composition rules of prospect value,answers the question of how on earth prospect configuration affects risk preferences from multiple perspectives,provides reasonable interpretations of their influencing mechanism from the perspective of cognitive psychological process of decision,to some extent deepens the understanding of the underlying causes and psychological laws of risk behavior,and provides possible explaining paths for the two long-standing academic differences between original and cumulative prospect theory from the perspective of prospect configuration,which has certain enlightening significance for the improvement and application of prospect theory,and has certain reference value for explaining and guiding behavior under risk in the real field,such as the gaming industry.