Selected factors affecting decisions undertaken under risky circumstances

Authors

  • Tomasz Rólczyński Wroclaw School of Banking
  • Maria Karolina Forlicz Uniwersytet Ekonomiczny we Wrocławiu

DOI:

https://doi.org/10.29015/cerem.195

Keywords:

preferences, utility, expected utility theory, a probability, a cumulative prospect theory, decision making, taking risk

Abstract

When making decisions about voluntary insurance or about taking part in a lottery, people should consider possible states of nature and a probability of their occurrence. Classical economics assumes that decisions of people acting in risky circumstances are compliant with the expected utility hypothesis. However theories based on human behaviour (in particular the cumulative prospect theory) claim that the process of decision making involves anomalies resulting from perception of reality e.g. the sign effect, peanuts effect and others.  The paper aims to verify the impact of selected factors on decisions made by people in circumstances of profits and losses. This aim was achieved by means of consecutive experiments carried out. Factors like the amount of win/loss, the probability of winning/losing were examined on the sample of over 600 people and decisions taken by them.  The results indicate that assumptions made by classical economics are not always met. In the experiments conducted, the attitude towards risks was affected by the amount of bet (with lower values there was a tendency to act safely), the probability of winning, a reference point and whether results of gaming were described as profits or losses.

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