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Reflecting on reflection: prospect theory, our behaviors, and our environment

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  • Oliver, Adam

Abstract

In a previously published article, I reported some tests of prospect theory's reflection effect over outcomes defined by money and life years gained from treatment. Those results suggested qualified support for the reflection effect over money outcomes and strong support over longevity outcomes. This article reruns those tests while accounting for the intensity of individual risk attitudes, and, overall, show consistency with the reflection effect. However, I argue that these results do not necessarily offer support for the explanatory power of prospect theory. Rather, the results may be driven by evolved responses to circumstances that provoke perceptions of scarcity and abundance. Therefore, from an ecological perspective, behavioral patterns such as those that are consistent with the reflection effect, which, by extension, tend to be considered as erroneous or biased by most behavioral economists because they conflict with the postulates of rational choice theory, may not be unreasonable. Recognizing as such is important when considering how behavioral insights ought to inform public policy design and implementation.

Suggested Citation

  • Oliver, Adam, 2024. "Reflecting on reflection: prospect theory, our behaviors, and our environment," LSE Research Online Documents on Economics 123966, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:123966
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    File URL: http://eprints.lse.ac.uk/123966/
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    References listed on IDEAS

    as
    1. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
    2. Harry Markowitz, 1952. "The Utility of Wealth," Journal of Political Economy, University of Chicago Press, vol. 60(2), pages 151-151.
    3. Adam Oliver, 2018. "Your money and your life: Risk attitudes over gains and losses," Journal of Risk and Uncertainty, Springer, vol. 57(1), pages 29-50, August.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    expected utility theory; prospect theory; reflection effect; risk intensity; risk sensitivity theory;
    All these keywords.

    JEL classification:

    • B21 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Microeconomics
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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