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Title: PROSPECT THEORY REVISITED: VIEWING THE RESULTS OF FRAMED DECISIONS THROUGH A REVISED VALUE FUNCTION
Authors: John Leddo and Mason Elkas
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John Leddo1 and Mason Elkas2 1. director of research at MyEdMaster, LLC. USA 2. researcher at MyEdMaster, LLC.USA
MLA 8 Leddo, John, and Mason Elkas. "PROSPECT THEORY REVISITED: VIEWING THE RESULTS OF FRAMED DECISIONS THROUGH A REVISED VALUE FUNCTION." Int. j. of Social Science and Economic Research, vol. 6, no. 10, Oct. 2021, pp. 3972-3983, doi.org/10.46609/IJSSER.2021.v06i10.023. Accessed Oct. 2021. APA 6 Leddo, J., & Elkas, M. (2021, October). PROSPECT THEORY REVISITED: VIEWING THE RESULTS OF FRAMED DECISIONS THROUGH A REVISED VALUE FUNCTION. Int. j. of Social Science and Economic Research, 6(10), 3972-3983. Retrieved from doi.org/10.46609/IJSSER.2021.v06i10.023 Chicago Leddo, John, and Mason Elkas. "PROSPECT THEORY REVISITED: VIEWING THE RESULTS OF FRAMED DECISIONS THROUGH A REVISED VALUE FUNCTION." Int. j. of Social Science and Economic Research 6, no. 10 (October 2021), 3972-3983. Accessed October, 2021. doi.org/10.46609/IJSSER.2021.v06i10.023.
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Abstract: Prospect Theory (Kahneman and Tversky, 1979) predicts decision making when people are confronted with choices involving gains or losses with different degrees of uncertainty. Prospect Theory argues that people are generally risk averse when it comes to seeking gains and risk seeking when it comes to seeking losses. Tversky and Kahneman (1981) even found that framing the same decision in terms of gains or losses could influence whether people were risk averse or risk seeking.Leddo et al. (2019) noted that the original formalization of Prospect Theory did not take into account people’s goals. They argued that people would be willing to take risks to achieve goals but become more risk averse once those goals are achieved, and they would become risk averse when confronted with losses in order to avoid a highly negative outcome but become more risk seeking to negate the negative outcome once it occurred. Leddo et al.’s research confirmed this hypothesis, leading to a revision of Prospect Theory’s value function. The Leddo et al. revision of the value function has implications for framing decisions as well. Unlike the original formulation of Prospect Theory, which predicts a main effect for whether decisions are framed in terms of gains or losses, but is silent about the effects of goals, the Leddo et al. value function predicts no main effect for gains or losses but a main effect for both gains and losses for whether outcomes presented are above or below a goal state. This hypothesis was tested on 88 high school students by creating a scenario similar to that in the original Tversky and Kahneman (1981)study in which people had to choose between option that would result in lives saved (gain scenario) or lives lost (loss scenario). In the present study, a goal state was created whereby 100 people out of 1000 survivors of a pandemic needed to live to insure the survival of the human race. Four versions of the basic scenario were created: 100 people would be saved for sure vs. risking saving fewer in order to save more; 50 people would be saved for sure vs. risking saving fewer in order to save more; 900 people would die for sure vs. risking more die to have fewer die; 950 people die for sure vs. risking more die to have only 900 people die. Participants were given only one scenario and asked to pick which option they wanted. Results showed no main effect for gain vs. loss but that people were risking seeking for both gains and losses when outcomes were below the aspiration and avoidance levels and risk averse for both gains and losses when outcomes were above the aspiration and avoidance levels. These results ran counter to those predicted by the original Prospect Theory and were consistent with the Leddo et al. (2019) revision of the Prospect Theory value function.

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