The Role of Payoff Ratio in Decision Making Under Uncertainty

Bart de Langhe, University of Colorado at Boulder, USA
Stefano Puntoni, Erasmus University Rotterdam, The Netherlands
Expected value, expected utility, and prospect theory assume additive integration of expected gains and losses (gain – loss). We document people’s pervasive tendency to integrate expected outcomes in a multiplicative way (gain/loss). Reliance on the payoff ratio predicts risk aversion (seeking) for mixed gambles with a positive (negative) expected value.
[ to cite ]:
Bart de Langhe and Stefano Puntoni (2012) ,"The Role of Payoff Ratio in Decision Making Under Uncertainty", in NA - Advances in Consumer Research Volume 40, eds. Zeynep Gürhan-Canli, Cele Otnes, and Rui (Juliet) Zhu, Duluth, MN : Association for Consumer Research, Pages: 284-287.