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Is brain activity observable that leads to an evaluation of a probability of 0.5 that is different from 0.5 in binary lottery choices?

Author

Listed:
  • Marcus Heldmann

    (Otto-von-Guericke University Magdeburg)

  • Ralf Morgenstern

    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

  • Thomas Münte

    (Otto-von-Guericke University Magdeburg)

  • Bodo Vogt

    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

Abstract

This paper focuses on the problem of probability weighing in the evaluation of lotteries. According to Prospect Theory a probability of 0.5 has a weight of smaller than 0.5. We conduct an EEG experiment in which we compare the results of the evaluation of binary lotteries by certainty equivalents with the results of the bisection method. The bisection method gives the amount of money that corresponds to the midpoint of the utilities of the two payoffs in a binary lottery as it has been shown previously. In this method probabilities are not evaluated. We analyzed EEG data focused on whether a probability is evaluated or not. Our data show differences between the two methods connected with the attention towards sure monetary payoffs, but they do not show brain activity connected with a devaluation of the probability of 0.5.

Suggested Citation

  • Marcus Heldmann & Ralf Morgenstern & Thomas Münte & Bodo Vogt, 2009. "Is brain activity observable that leads to an evaluation of a probability of 0.5 that is different from 0.5 in binary lottery choices?," FEMM Working Papers 09003, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    • Handle: RePEc:mag:wpaper:09003
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    References listed on IDEAS

    as
    1. Albers Wulf & Selten Reinhard & Pope Robin & Vogt Bodo, 2000. "Experimental Evidence for Attractions to Chance," German Economic Review, De Gruyter, vol. 1(2), pages 113-130, May.
    2. Mohammed Abdellaoui, 2000. "Parameter-Free Elicitation of Utility and Probability Weighting Functions," Management Science, INFORMS, vol. 46(11), pages 1497-1512, November.
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