Abstract
AbstractIn 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.
Highlights
Prospect theory’s reflection effect Nobody working in behavioral public policy will be unfamiliar with prospect theory, with its component parts of probability weighting and, loss aversion having occupied prominent places in the discourse during the development of this relatively new multidisciplinary field
The red dotted curve is a representation that is consistent with the reflection effect: i.e., risk aversion over high probability gains and low probability losses, and risk seeking over low probability gains and high probability losses
The evidence for the full reflection effect over money outcomes was a little mixed, in that while the risk attitudes were strongly consistent with reflection when respondents were faced with high probability gambles, there was no general strong support for prospect theory reflection over small probability gambles
Summary
The sample size was small and chosen for convenience – i.e., 60 postgraduate and university staff, 45 of whom were female (44 were age 18–30 years, 13 were 31–45 years, one was 46–60 years and two were older than 60 years, and 44 had studied economics) – but no claim is made that the results are definitive. The questions were described as investment decisions, and their order was randomized across the respondents in a within-respondent design.
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