Relation of perceived risk to preferences among gambles

Investigated the concept of risk and its role in determining preferences, using pairs of specifically constructed 3-outcome gambles. Ss were 47 undergraduates. The risk dimensions, probabilities of winning and losing, and amounts to be won or lost were different for each gamble in a pair, but the expected values and variances were approximately equal. The probability of losing was most important in determining judged risk. The likelihood that the more risky gamble in a pair would be chosen as the preferred gamble was related to the probability relationship within the gambles in a pair. The relative importance of the probabilities and amounts in preference choices was also contingent on the probability relationships. Amounts were more closely associated with preference choices when the probability of winning was greater than the probability of losing within each gamble, and the probabilities were more closely associated with the choices when the probability of winning was less than the probability of losing. The relevance of these findings to other theories of risk and the evidence for contingent processing of information in risky decision making are discussed. (PsycINFO Database Record (c) 2006 APA, all rights reserved). © 1975 American Psychological Association.

Duke Scholars

Author John W. Payne Fuqua School of Business