On prospect theory, making choices for others, and the affective psychology of risk

Abstract

Previous research has generally shown that people’s decisions conform to the four-fold pattern of prospect theory; that is, people over-weight prospects with small probabilities and under-weight prospects with large probabilities. In terms of making risky decisions, the four-fold pattern unfolds accordingly: people make (1) risk-seeking choices among options that involve small-probable gains or large-probable losses; and (2) risk-averse choices among options that involve small-probable losses or large-probable gains. In three experiments and a summary quantitative model, we found that for interpersonal choices—decisions people make for others—the four-fold pattern attenuates and reverses in shape. We attributed this transformation to a unique signature in interpersonal decision makers’ emotions, which varied in mean, mode, and distribution from personal decision makers’. In all, our research offers new insights on prospect theory, interpersonal decision making, and the affective psychology of risk.