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Reversals of Preference between Compound and Simple Risks: The Role of Editing Heuristics

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  • Ranyard, Rob

Abstract

A reversal of preference between compound and simple risks was demonstrated in the context of compound gambles with loss elements transparently in common. The role of predecision editing heuristics in this violation of the Invariance Principle was explored in a process-tracing study. Verbal reports showed that cancellation-by-similarity and amalgamation heuristics were differentially applied to simple and compound risks depending on their similarity structure. It is argued that such heuristics are often useful in simplifying complex choice problems without loss of important information. However, the inappropriate cancellation of elements of compound risk can be maladaptive, and can contribute to a lack of insight into the true nature of these risks. Copyright 1995 by Kluwer Academic Publishers

Suggested Citation

  • Ranyard, Rob, 1995. "Reversals of Preference between Compound and Simple Risks: The Role of Editing Heuristics," Journal of Risk and Uncertainty, Springer, vol. 11(2), pages 159-175, September.
    • Handle: RePEc:kap:jrisku:v:11:y:1995:i:2:p:159-75
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    Cited by:

    1. Yves Alarie & Georges Dionne, 2004. "On the Necessity of Using Lottery Qualities," Cahiers de recherche 0415, CIRPEE.
    2. Yves Alarie & Georges Dionne, 2006. "Lottery qualities," Journal of Risk and Uncertainty, Springer, vol. 32(3), pages 195-216, May.
    3. Alarie, Yves & Dionne, Georges, 2001. "Optimal cognitive processes for lotteries," Working Papers 01-2, HEC Montreal, Canada Research Chair in Risk Management.
    4. Berg, Joyce E. & Dickhaut, John W. & Rietz, Thomas A., 2010. "Preference reversals: The impact of truth-revealing monetary incentives," Games and Economic Behavior, Elsevier, vol. 68(2), pages 443-468, March.
    5. Wang, Mei & Fischbeck, Paul, 2004. "Evaluating lotteries, risks, and risk mitigation programs : a comparison of China and the United States," Papers 04-13, Sonderforschungsbreich 504.

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