Walasek, Lukasz, Mullett, Timothy L. and Stewart, Neil (2021) Acceptance of mixed gambles is sensitive to the range of gains and losses experienced, and estimates of lambda (λ) are not a reliable measure of loss aversion : reply to André and De Langhe. Journal of Experimental Psychology : General, 150 (12). pp. 2666-2670. doi:10.1037/xge0001054 ISSN 0096-3445.

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Abstract

Walasek and Stewart (2015) demonstrated that loss aversion estimated from fitting accept–reject choice data from a set of 50–50 gambles can be made to disappear or even reverse by manipulating the range of gains and losses experienced in different conditions. André and de Langhe (2021) critique this conclusion because in estimating loss aversion on different choice sets, Walasek and Stewart (2015) have violated measurement invariance. They show, and we agree, that when loss aversion is estimated on the choices common to all conditions, there is no difference in prospect theory’s λ parameter. But there are two problems here. First, while there are no differences in λs across conditions, there are very large differences in the proportion of the common gambles that are accepted, which André and de Langhe chose not to report. These choice proportion differences are consistent with decision by sampling (but are inconsistent with prospect theory or any of the alternative mechanisms proposed by André & de Langhe, 2021). Second, we demonstrate a much more general problem related to the issue of measurement invariance: that λ estimated from the accept–reject choices is extremely unreliable and does not generalize even across random splits within large, balanced choice sets. It is therefore not possible to determine whether differences in choice proportions are due to loss aversion or to a bias in accepting or rejecting mixed gambles. We conclude that context has large effects on the acceptance of mixed gambles and that it is futile to estimate λ from accept–reject choices.

Item Type:	Journal Article
Subjects:	H Social Sciences > HB Economic Theory
Divisions:	Faculty of Social Sciences > Warwick Business School > Behavioural Science Faculty of Science, Engineering and Medicine > Science > Psychology Faculty of Social Sciences > Warwick Business School
Library of Congress Subject Headings (LCSH):	Loss aversion -- Econometric models, Decision making, Risk, Uncertainty -- Mathematical models, Probabilities
Journal or Publication Title:	Journal of Experimental Psychology : General
Publisher:	American Psychological Association
ISSN:	0096-3445
Official Date:	December 2021
Dates:	Date Event December 2021 Published 3 December 2020 Accepted
Volume:	150
Number:	12
Page Range:	pp. 2666-2670
DOI:	10.1037/xge0001054
Status:	Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Open Access (Creative Commons)
Date of first compliant deposit:	7 December 2020
Date of first compliant Open Access:	2 July 2021
RIOXX Funder/Project Grant:	Project/Grant ID RIOXX Funder Name Funder ID ES/P008976/1 [ESRC] Economic and Social Research Council http://dx.doi.org/10.13039/501100000269 ES/V004867/1 [ESRC] Economic and Social Research Council http://dx.doi.org/10.13039/501100000269 ES/N018192/1 [ESRC] Economic and Social Research Council http://dx.doi.org/10.13039/501100000269
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