Shlomi Sher, Craig R.M. McKenzie, and I have a new ARTICLE IN PRESS at the Journal of Experimental Psychology: General. It's the result of a really fun project that raises some interesting questions about how numbers affect risk preferences. Here's the short abstract:
Decision makers are commonly seen as subjectively evaluating monetary gains with a concave “value function,” and probabilities with an inverse-S-shaped “weighting function.” But in experimental studies, form and content are often confounded: While probabilities are bounded, monetary gains are usually unbounded above. We hypothesized that bounded representations of monetary gains can yield inverse-S-shaped value functions, and unbounded representations of probabilities concave weighting functions. In several experiments, we document novel preference reversals predicted by our hypothesis.
Decision makers are commonly seen as subjectively evaluating monetary gains with a concave “value function,” and probabilities with an inverse-S-shaped “weighting function.” But in experimental studies, form and content are often confounded: While probabilities are bounded, monetary gains are usually unbounded above. We hypothesized that bounded representations of monetary gains can yield inverse-S-shaped value functions, and unbounded representations of probabilities concave weighting functions. In several experiments, we document novel preference reversals predicted by our hypothesis.