Alternative approaches to decision making under risk: Moments versus risk dimensions

Suggests that the literature on individual decision making under risk is characterized by 2 approaches to the description of gambles. The 1st describes gambles as probability distributions over sets of outcomes. Models of decision making developed within this approach have concentrated on the moments of the distributions as the primary determinants of risky decision behavior. The 2nd approach describes gambles as multidimensional stimuli which may be conceptualized in terms of basic risk dimensions, (e.g., probability of winning, amount to win, probability of losing, and amount to lose). This approach views risky decision behavior as a form of information processing. The relative merits of explanations derived from each approach are discussed. It is argued that the risk dimension approach appears more promising than that based on moments of the underlying probability distribution. (PsycINFO Database Record (c) 2006 APA, all rights reserved). © 1973 American Psychological Association.

Duke Scholars

Author John W. Payne Fuqua School of Business