Exaggerated Risk: Prospect Theory and Probability Weighting in Risky Choice

Petko Kusev, Paul van Schaik, Peter Ayton, John Dent, Nick Chater

Research output: Contribution to journalArticlepeer-review

74 Citations (Scopus)


In 5 experiments, we studied precautionary decisions in which participants decided whether or not to buy insurance with specified cost against an undesirable event with specified probability and cost. We compared the risks taken for precautionary decisions with those taken for equivalent monetary gambles. Fitting these data to Tversky and Kahneman's (1992) prospect theory, we found that the weighting function required to model precautionary decisions differed from that required for monetary gambles. This result indicates a failure of the descriptive invariance axiom of expected utility theory. For precautionary decisions, people overweighted small, medium-sized, and moderately large probabilities-they exaggerated risks. This effect is not anticipated by prospect theory or experience-based decision research (Hertwig, Barron, Weber, & Erev, 2004). We found evidence that exaggerated risk is caused by the accessibility of events in memory: The weighting function varies as a function of the accessibility of events. This suggests that people's experiences of events leak into decisions even when risk information is explicitly provided. Our findings highlight a need to investigate how variation in decision content produces variation in preferences for risk.
Original languageEnglish
Pages (from-to)1487-505
Number of pages19
JournalJournal of Experimental Psychology: Learning Memory and Cognition
Issue number6
Publication statusPublished - Nov 2009
Externally publishedYes


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