Prospect Theory Research Articles

The framing effect and sustainable hotel booking behaviour: A nudge marketing study

This study examines whether message framing affects visitors' propensity to adopt more sustainable choices by emphasising the possible gains or losses associated with certain behaviours. The research seeks to assess the efficacy of gain-and-loss framing in motivating individuals to book sustainable hotel accommodations while travelling. This article utilises the theoretical frameworks of prospect theory and framing effects. We studied 116 people who booked hotels online in a randomised, controlled study. The three groups consisted of a control group, a gain- frame group informed about the benefits of sustainable hotels, and a loss-frame group informed about the disadvantages of non-sustainable hotels. The significant difference among the three scenarios was evident; the gain-frame effect was more pronounced. Implementing gain-frames may influence consumers' decision-making about more sustainable hotel bookings. This report provides actionable insights for marketers, including successful tactics to communicate hotel companies' sustainable practices and business values. It enhances the existing knowledge by using nudge marketing and framing effects to demonstrate their potential use in encouraging sustainable habits in hotel bookings.

Behavioral factors Influence on choice of Mutual Fund in Uzbekistan: A Proposed Model using Prospect Theory

This article proposed a model to investigate the behavioral factors influencing the choice of funds in mutual fund investment by using Prospect Theory. It used new independent variables to inoculate new findings to help the understanding of the influence of human behavior in decision making.

Evolutionary Game Analysis of Complex Networks in Enterprise Green Technology Innovation From a Prospect Theory Perspective

ABSTRACTGreen technological innovation in enterprises is a key driving force for achieving sustainable development and industrial transformation. However, how enterprises formulate effective innovation strategies by integrating subjective factors with objective market conditions within complex industrial networks remains an area requiring further exploration. This study aims to construct a complex network evolution model based on prospect theory and examines how subjective factors, such as reference points, risk preferences, and loss aversion, influence the adoption of green technology innovation in different network environments. It further explores how network characteristics, including topology, size, and node degree, affect the diffusion of innovation. Numerical analysis results indicate that in scale‐free networks, lowering reference points for enterprise gains, reducing loss aversion, increasing risk preference, expanding network size, and raising average node degree generally promote higher adoption of green technology innovation. In small‐world networks, the dependence on reference points is relatively lower, risk preference and average node degree demonstrate more complex impacts. Additionally, a moderate rewiring probability can enhance green technology innovation adoption in small‐world networks. These findings provide new insights and practical implications for understanding the driving mechanisms of green technological innovation in enterprises. They further emphasize the importance of government interventions tailored to the specific characteristics of industrial networks to effectively facilitate the diffusion of green technological innovation.

Application of Evolutionary Game to Analyze Dual-Channel Decisions: Taking Consumer Loss Aversion into Consideration

Manufacturers and consumers are boundedly rational and ultimately seek evolutionarily stable strategies through trial and error, imitation, and learning. It is important to study the pricing strategies of manufacturers and the purchasing channel decisions of consumers in the context of increasingly fierce competition in online channels, in addition to consumers’ loss aversion due to increasingly confusing promotional strategies; accordingly, in this paper, an evolutionary game including both parties is constructed, and the loss aversion factor from prospect theory is introduced. Based on data from Chinese media reports on the cosmetics industry, simulation and sensitivity analyses were conducted using Matlab R2024a. The results indicate that—in addition to channel services affecting the evolutionarily stable strategy for purchasing channel selection—a decrease in consumer loss aversion will help consumers reach the evolutionarily stable strategy faster. For manufacturers, channel services do not affect their evolution to a unified pricing strategy; however, when consumer loss aversion increases, manufacturers’ evolutionarily stable strategy will shift from a unified pricing strategy to a differentiated pricing strategy.

Probabilistic linguistic carpooling matching decision-making considering time satisfaction based on prospect theory

To improve the travel efficiency of carpooling demanders and reduce travel costs, a carpooling matching decision-making method is proposed that considers preference satisfaction and time satisfaction in a probabilistic linguistic environment. First, the multiattribute many-to-one carpooling matching problem in the probabilistic linguistic environment is described. To solve this problem, based on probabilistic linguistic term set (PLTS) evaluation matrices, attribute prospect values are calculated via prospect theory, and based on probabilistic linguistic preference relations (PLPRs) for attributes, group consistency attribute weights are calculated. Second, cumulative prospect values are calculated by aggregating attribute prospect values and attribute weights and then standardized to obtain the preference satisfactions of passengers and drivers. Third, based on the interval expected waiting time provided by passengers and the estimated arrival time provided by drivers, the time satisfaction of passengers is calculated considering time tendency coefficients. Then, the comprehensive satisfaction of passengers is calculated by aggregating preference satisfaction and time satisfaction via the geometric average method. Furthermore, based on the comprehensive satisfaction of passengers and the preference satisfaction of drivers, a many-to-one carpooling matching model is constructed and then solved to obtain an optimal many-to-one carpooling matching scheme. An example analysis shows the effectiveness, reliability and accuracy of the proposed method. The main innovations of this study are as follows: (1) A calculation method for the improved score of PLTSs considering hesitation is proposed. (2) Two algorithms for calculating unknown attribute weights are designed based on PLPRs. (3) A calculation method for time satisfaction considering time tendency coefficients is presented. (4) A model for probabilistic linguistic multiattribute many-to-one carpooling matching considering time satisfaction is built.

Determinants of Economic Risk Preferences Across Adolescence

ABSTRACTThis study examined economic risk preferences using a multidimensional approach in adolescents and young adults (N = 444, ages 13–27). Despite the two major theoretical approaches in adolescent economic risk‐taking—socioemotional theories and fuzzy‐trace theory—comparatively little is known about the role of incidental affective factors in economic risk‐taking. We tested six demographic and psychological determinants (age, gender, positive/negative affect, state anxiety, and indecision) on two economic risk decision tasks (loss aversion and skewness). Adolescents reported higher positive affect and lower negative affect than adults, but anxiety and indecision were age‐invariant. Women showed lower positive affect and higher negative affect, state anxiety, and indecision compared to men. We found women to be more loss‐averse; all other factors were not related to loss aversion. Adolescents were equally likely to accept symmetric and skewed gambles, whereas adults had more nuanced preferences. Adolescents also demonstrated a reduced bias toward negatively skewed risks compared to young adults, but both groups showed similar preferences for positively skewed and symmetric risks. These results support fuzzy‐trace theory's prediction of age‐related shifts from verbatim to gist representations: More verbatim processing during adolescence facilitated risk‐taking in negatively skewed risks, diverging from prospect theory. Positive affect shifted risk preference for adolescents and young adults in divergent directions—adolescents favored symmetrical risks more, while adults favored negatively skewed risks more. These patterns illustrate that adolescents and young adults in positive moods demonstrate risk preferences that are rare for their developmental stage, with potentially detrimental consequences depending on the choice at hand.

Research on Assessment Method of Tourism User Perceived Value Based on Prospect Theory

Research on Assessment Method of Tourism User Perceived Value Based on Prospect Theory

Applying Prospect Theory to Improve the Performance of Capital Asset Pricing Models in an Emerging Market

Applying Prospect Theory to Improve the Performance of Capital Asset Pricing Models in an Emerging Market

Deciphering Investment Decision in Fintech: The Role of Behavioral Bias and Risk Perception

Purpose – This study aimed to investigate the effect of behavioral biases on Indonesian investors using fintech platforms. The roles of blue-chip stock, availability, herding, and overconfidence bias, as well as disposition effect on investment decisions, were examined both directly and indirectly through risk perception. Methodology – Data were collected via stributing online surveys to over 360 investors between November 2023 and January 2024. Structural Equation Model analysis method was used to evaluate the data. Results – Availability and blue-chip stock biases positively influence investment decisions and risk perception, while herding bias is insignificant. Overconfidence bias and disposition effect significantly affect risk perception but not investment decisions. Risk perception mediates the significant effects of availability and blue-chip stock biases on investment decisions. Originality – The study explores the unique role of fintech platforms in shaping investment decisions, extending beyond traditional analyses of investor psychology. Prospect theory was applied as a theoretical lens to examine the effect of specific behavioral biases on investment decisions and risk perception within the Indonesian fintech context.

A measure of information value for risk.

Information is crucial for risk management; however, no quantified measure to evaluate risk information exists to date. The standard measure of value of factual information is information entropy-that is, the negative logarithm of probability. Despite its applications in various fields, this measure is insufficient for the evaluation of risk information; there are three reasons. First, it requires precise probabilities, which are generally absent in the context of risks. Second, it does not consider the effect of the consequences, which is essential for risks. Third, it does not account for human preferences and subjectivity. This study proposes a quantified measure for the evaluation of factual risk information-that is, observations of occurrence, particularly for binary, unambiguous, and rare phenomena. To develop such a measure, precise probabilities are replaced with updated probabilities, based on the Prospective Reference Theory. Additionally, utility is included as a proxy for the size of consequences. The third challenge-human preferences and subjectivity-is partly addressed by the application of updated perceived probabilities and utility as a measure of human preferences. Such a conventional, quantified measure facilitates the comparison of the potential impact of different messages for a new observation of occurrence for a risk, as well as of messages for different risks. Moreover, it clarifies the factors that systematically affect this impact. More particularly, it indicates the major effects of the perceived number of past occurrences.

Synergy of risk management and organizational behavior in the context of ensuring economic security of enterprises

In the modern, rapidly changing world, enterprises of any ownership structure, scale, and industry face numerous challenges that require flexibility and swift responses to external threats and internal shifts. This is particularly relevant in the context of globalization and increasing risks associated with rapid technological innovations, economic disruptions, and market instability. The study is aimed at identifying the key aspects of the synergy between risk management and organizational behavior in the context of ensuring the economic security of enterprises. Based on a review of theoretical sources, the importance of integrating the two domains—risk management and organizational behavior—was revealed as a means to enhance the resilience of enterprises. The so-called «intersection point» between these domains has been identified, allowing firms to improve their ability to respond to risks and mitigate their negative impacts. This intersection is critically important, as risks and threats are an inherent part of business operations in the face of ongoing uncertainty and a rapidly changing business environment. Significant attention in the research is devoted to the human capital component as the foundation of the synergy between risk management and organizational behavior. It has been found that human capital plays a key role in ensuring the economic security of enterprises, as qualified and motivated employees are better equipped to identify risks, respond effectively, and develop strategies to minimize their impact. The article emphasizes the importance of developing adaptive capabilities among personnel, which allows enterprises to remain competitive even under challenging conditions. Additionally, psychological factors influencing decision-making in the context of risks are examined. The application of prospect theory provides a deeper understanding of how individual and group decisions are shaped by risk perceptions. Psychological aspects, including stress levels, individual differences in risk perception, and the influence of collective decision-making, are integral components affecting the effectiveness of risk management. These factors often determine how successfully an enterprise can manage risks and respond to challenges, especially in uncertain environments. Thus, the synergy between risk management and organizational behavior not only enhances the resilience of an enterprise but also establishes new approaches to strategic management. This enables businesses not only to survive but also to thrive in the fast-changing conditions of the modern market.

Acute stress differentially influences risky decision-making processes by sex: A hierarchical bayesian analysis.

How does stress influence our decision-making? Although numerous studies have attempted to answer this question, their results have been inconsistent-presumably due to methodological heterogeneity. Drawing on cumulative prospect theory, we examined how acute stress influenced risky decision-making. To this end, we randomly assigned 147 participants to an acute stress induction or control condition and subsequently assessed participants' risky decision-making. We found that stress increased risky decision-making overall, but more importantly, that stress exerted multiple effects on risky decision-making processes that differed between male and female participants. For female participants, relative to the control condition, stress produced a pattern of decision-making characterized by risk seeking with respect to gains, slightly reduced loss aversion, accurate outcome probability assessment, and greater choice stochasticity. For male participants, stress, relative to the control condition, produced to a pattern of decision-making characterized by very low loss aversion and poorer outcome probability assessment. These results suggest that some of the heterogeneity in existing literature may be explainable by task differences in risk type, risk amount, and outcome certainties, and further that these effects will differ by sex. In short, stress changes how we make decisions, and it does so differently by sex.

Risk and Time Preferences Among the Urban Poor in Saudi Arabia

ABSTRACTThis paper investigates behavioral attitudes toward risk and time among the urban poor in Saudi Arabia by conducting an incentivized lab‐in‐the‐field experiment and exploring the correlations between these attitudes and demographic and socioeconomic characteristics that are relevant in the Saudi context. Specifically, the focus of this research is on cultural and religious indicators related to Bedouin heritage and the strength of religious beliefs as well as a set of different proxies for poverty, including income, assets, social welfare payments, and social capital. Accordingly, we define a discounted utility model, where we apply prospect theory and quasihyperbolic discounting. We then jointly estimate participants' risk and time preferences via a maximum likelihood approach. Our results suggest that, on average, poor urban Saudis exhibit high levels of risk aversion and patience; these findings are similar to those reported in other studies that have investigated Muslim respondents in rural settings. We also reveal that stronger religious beliefs are associated with higher levels of risk‐taking and a stronger preference for the present, whereas Bedouin heritage and asset‐related poverty in terms of home ownership and savings are related to higher levels of risk aversion and impatience.

Assessing an experimental rule change in the pay-offs for soccer league match outcomes using historical data for Ireland

IntroductionThis paper evaluates an experimental rule change trialed in the League of Ireland for one season in the early 1980s, where four points were awarded for an away win, three for a home win, two for an away draw, and one for a home draw. This pay-off structure was designed to incentivize visiting teams to engage in more offensive play, thus potentially increasing the number of goals scored per game and reducing the incidence of drawn games.MethodsUsing match-level data for six playing seasons, the impact of this reward scheme on an array of match-level outcomes is evaluated using an array of fixed effects regression models.Results and discussionThe key empirical findings suggest this change to the pay-off structure did not reduce the drawn game rate but did induce a modest increase in the average goal scoring of the home team with subsequent implications for average goal difference. The absence of an effect for the visiting team is rationalized in terms of prospect theory, and the asymmetric implication of the policy change for the respective loss aversion parameters of the home and the visiting teams. In addition, we also use a lottery framework to further demonstrate why the short-lived pay-off structure failed in its primary objective to incentivize visiting teams to engage in more offensive play.

Relationship between (under)confidence and prospect theory in risky decisions: Challenges for financial literacy policies

Relationship between (under)confidence and prospect theory in risky decisions: Challenges for financial literacy policies

Is there a description-experience gap in choices between a described and an experienced option?

Decision makers seem to evaluate risky options differently depending on the learning mode-that is, whether they learn about the options' payoff distributions from a summary description (decisions from description) or by drawing samples from them (decisions from experience). Are there also discrepancies when people choose between a described and an experienced option? In two experiments, we compared people's behavior in a condition with mixed learning modes (i.e., one option described, the other experienced with the sampling paradigm) to that in conditions where both options were either described or experienced. Using cumulative prospect theory's value and probability weighting functions to characterize how observed outcome and probability information was subjectively distorted in people's choices, we found clear differences between the pure description and pure experience conditions. In the mixed-mode condition, however, the value and probability weighting functions did not differ between the described and the experienced options, suggesting that people evaluated them based on a joint representation despite the different learning modes. Participants' choices were not biased toward the described or the experienced option. Finally, per-option search effort for an experienced option tended to be higher in the mixed-mode condition than in the purely experience-based condition. Our findings demonstrate that how people evaluate described and experienced options depends on the learning mode of the other option in the choice set, highlighting a previously overlooked boundary condition of discrepancies between description- and experience-based choice. (PsycInfo Database Record (c) 2024 APA, all rights reserved).

Risk assessment of poverty-returning based on hybrid q-rung orthopair fuzzy EDAS and prospect theory

PurposeAccurately identifying the risk of poverty-returning is a complex and critical challenge in current poverty alleviation efforts. However, there is currently no study on evaluation methods for the risk of poverty-returning. This study aims to establish a robust and systematic approach for an evaluation framework for the risk of poverty-returning.Design/methodology/approachBased on relevant assessment criteria, a maximum deviation method was established to identify the weights of the indicators. A complex evaluation methodology using prospect theory (PT), a q-rung orthopair fuzzy set (QrOFS) and evaluation relying on distance from average solution [EDAS] (QrOFS-PT-EDAS) was developed to evaluate the poverty-returning risks. Some policy recommendations to reduce the risk of poverty-returning have also been put forward.FindingsHis study identifies the risk factors of poverty relapse from nine aspects, including natural disasters, accidents and policy-driven poverty relapse. In addressing the evaluation challenge arising from uncertain decision-making, the QrOFS aligns more with people’s thinking habits and expression methods in complex environments. The proposed hybrid evaluation framework accurately measures the poverty-returning risk, which is beneficial for the formulation of policy recommendations.Originality/valueA scientific and comprehensive assessment system index for poverty-returning is constructed. A hybrid QrOFS-PT-EDAS framework is presented to make the evaluation results more scientific and objective. Several strategic recommendations for reducing the poverty-returning risk are presented. This study offers a novel framework for assessing poverty-returning issues that can be extended to many other areas.

How Does Loss Aversion Mediate the Relationship Between Personality Traits and Efficiency of Skills in Investment Decision- Making?

This study examines how loss aversion mediates the connection between personality factors and the effectiveness of investment decision-making skills among individual investors at the Colombo Stock Exchange. This research challenges the neoclassical paradigm that presumes investor rationality. Instead, it accords with behavioural finance, which emphasizes deviations from rationality in both beliefs and preferences. Using Prospect Theory as a framework, this study examines how the five major personality traits -conscientiousness, extraversion, agreeableness, neuroticism, and openness to experience influence investment decision-making. Analyzing data from 351 investors, a structured questionnaire and purposive sampling were used. The analysis was conducted using Structural Equation Modelling with SmartPLS4. The results demonstrate notable correlations: individuals with a higher level of openness to experience and agreeableness tend to have a positive impact on their investment decision-making, whereas extraversion, openness to experience, and conscientiousness are highly associated with loss aversion. Loss aversion plays a crucial role in connecting extraversion, conscientiousness, and openness to experience with investment decision-making. This study enhances the field of behavioural finance by providing a detailed understanding of how personality traits and loss aversion influence investing choices.

RELATIONSHIP BETWEEN ECONOMIC RISK AND FINANCIAL, PERFORMANCE OF COMMERCIAL BANKS IN KENYA

Financial institutions play a key role in spurring the growth of the economy. Commercial banks operate in a highly volatile environment which threatens their ability to achieve their desired goals. The purpose of this study was to establish the relationship between economic risk and the financial performance of commercial banks in Kenya. The study was anchored on agency and prospect theories. Longitudinal and cross-sectional research design was used. The study population was 42 commercial banks in Kenya. 32 purposively sampled commercial banks which had audited financial accounts for the years 2016 to 2021 were included in the study. Secondary panel data collected using an extraction tool validated by experts from banks and academia was analyzed using R statistical software version 4.3.2. Reliability of the data was ensured by using audited financial reports. Descriptive and inferential data analysis techniques were used. Inferential statistics used were linear mixed effects multiple regression allowing random effects to vary by banks. The study findings showed that economic risk significantly influence financial performance with high liquidity and credit risks associated with lower ROE (beta; -10.36; 95% Confidence Interval (CI): ( -18.45 to -2.27), p-value: 0.012) and (beta: -0.29; 95% CI (-0.46 to -0.13), p-value: 0.001.)The study concluded that there is a statistically significant relationship between economic risk and financial performance of commercial banks in Kenya. Based on the findings from this study, it is recommended that commercial banks may adopt a holistic approach to risk management by emphasizing economic risks. This study may significantly benefit the government, CBK and the commercial bank management in Kenya to inform policy framework as well as the academia and researchers as far as economic risk and financial performance of commercial banks is concerned.

Leveraging Loss Aversion and Self-Efficacy: The Role of Water Pricing and Risk in Driving Individual Innovation for Sustainable Water Consumption

Water scarcity is a growing global challenge, requiring effective management strategies to ensure sustainable water use, particularly in regions like West Dorset, U.K., where rising prices and environmental pressures make sustainable consumption practices essential. This study develops and empirically tests an integrated theoretical framework combining Prospect Theory (PT) and Social Cognitive Theory (SCT) to examine the mechanisms driving household water conservation. Using structural equation modelling on data from 429 residents in West Dorset (response rate 78.3%), we investigated how water pricing (WP) and perceived water risk (PWR) influence sustainable water consumption through individual innovativeness (II) and community engagement (CE), with environmental regulations (ERs) as a moderator. The results revealed significant positive effects of WP and PWR on individual innovativeness, which, in turn, strongly predicted community engagement. The relationship between these factors and sustainable water consumption was significantly moderated by ERs. This study makes three key contributions: Firstly, it empirically validates an integrated PT-SCT framework in water conservation behavior. Secondly, it identifies the crucial mediating role of II in translating price and risk perceptions into community action; and lastly, it demonstrates how regulatory frameworks can enhance or inhibit conservation outcomes. These findings inform policy recommendations for tiered pricing structures, community-based conservation initiatives, and adaptive regulatory frameworks. This study provides a comprehensive model for understanding and promoting sustainable water consumption in water-stressed regions worldwide.