Prospect Theory has been highly influential; however its experimental paradigm lacks higher orders of uncertainty. To introduce this, participants are asked to imagine themselves facing a choice between two bags containing 100,000 blue or red balls in unknown proportions. A red ball wins £500. Participants are shown samples from each bag; e.g., 5 balls from Bag 1 (3 red) and 100 balls from Bag 2 (55 red). The bags can be represented by distributions with Bag 1 having a higher mean probability estimate (60% vs 55%), but more variance (second order uncertainty) in that estimate. By varying observed frequencies and gain vs loss formats, we seek to determine if classic findings remain when higher order uncertainties are present. Results consistent with the four-fold pattern are seen for gains (uncertainty seeking at low probability values, uncertainty aversion at high probability values) but for losses, uncertainty aversion is seen at all values.

Authors:

Stephen H Dewitt: University College London; Michelle Lam: University College London; Andy Shi: University College London; Borys Tam: University College London; Samuel Henri Dupret: University College London; Toby D Pilditch: University College London; David Lagnado: University College London