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You cannot accurately estimate an individual’s loss aversion using an accept-reject task
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Walasek, Lukasz and Stewart, Neil (2021) You cannot accurately estimate an individual’s loss aversion using an accept-reject task. Decision, 8 (1). pp. 2-15. doi:10.1037/dec0000141 ISSN 2325-9965.
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Official URL: http://dx.doi.org/10.1037/dec0000141
Abstract
Prospect theory’s loss aversion is often measured in the accept–reject task, in which participants accept or reject the chance of playing a series of gambles. The gambles are 2-branch 50/50 gambles with varying gain and loss amounts (e.g., 50% chance of winning $20 and a 50% chance of losing $10). Prospect theory quantifies loss aversion by scaling losses up by a parameter λ. Here, we show that λ suffers from extremely poor parameter recoverability in the accept–reject task. The λ cannot be reliably estimated even for a simple version of prospect theory with linear probability weighting and value functions. The λ cannot be reliably estimated even in impractically large experiments with participants subject to thousands of choices. The poor recoverability is driven by a tradeoff between λ and the other model parameters. However, a measure derived from these parameters is extremely well recovered—and corresponds to estimating the area of gain–loss space in which people accept gambles. This area is equivalent to the number of gambles accepted in a given choice set. That is, simply counting accept decisions is extremely reliably recovered—but using prospect theory to make further use of exactly which gambles were accepted and which were rejected does not work.
Item Type: | Journal Article | |||||||||
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Subjects: | B Philosophy. Psychology. Religion > BF Psychology | |||||||||
Divisions: | Faculty of Science, Engineering and Medicine > Science > Psychology | |||||||||
Library of Congress Subject Headings (LCSH): | Loss aversion, Gambling -- Psychology, Gambling -- Psychological aspects | |||||||||
Journal or Publication Title: | Decision | |||||||||
Publisher: | American Psychological Association | |||||||||
ISSN: | 2325-9965 | |||||||||
Official Date: | January 2021 | |||||||||
Dates: |
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Volume: | 8 | |||||||||
Number: | 1 | |||||||||
Page Range: | pp. 2-15 | |||||||||
DOI: | 10.1037/dec0000141 | |||||||||
Status: | Peer Reviewed | |||||||||
Publication Status: | Published | |||||||||
Reuse Statement (publisher, data, author rights): | ©American Psychological Association, 2020. This paper is not the copy of record and may not exactly replicate the authoritative document published in the APA journal. Please do not copy or cite without author's permission. | |||||||||
Access rights to Published version: | Open Access (Creative Commons) | |||||||||
Date of first compliant deposit: | 4 September 2020 | |||||||||
Date of first compliant Open Access: | 8 September 2020 | |||||||||
RIOXX Funder/Project Grant: |
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