### Abstract

The aim of this study was to investigate the irrationality in decision making on risk attitude. More concretely, the likelihood of reflection effect in decision making was investigated and compared between two conditions (the reflection effect from the risk seeking choice to the risk aversive choice and that from the risk aversive choice to the risk seeking choice). Second, the condition (p-value (probability of gain or loss) in for the reversal of choice (change of risk attitude) was identified and compared between gain and loss domains. In such a way, the irrational property in decision making on risk attitude was pointed out. On the basis of such an approach, it was discussed how decision making on choosing one of the two prospects (A) ($Y, p) and (B) ($X,1) should be systematically treated in order to generalize the behavior of changing risk attitude under the condition of a smaller value of p and (Y is by far larger than X). Moreover, it was also pointed out that the derivation of the property of weighting function in prospect theory using a simple demonstrative decision making paradigm cannot be generalized and is not proper for verifying and deriving this property. The results were as follows: (1) While the reflective effect from the risk seeking choice to the risk aversive choice readily occurred when the occurrence probability of the larger gain was low, the reflective effect from the risk aversive choice to the risk seeking choice was unlikely and didn't readily occur. (2) The larger change (increment or decrement) of p-value was necessary to change the risk attitude (from risk aversive to risk seeking, and vice versa) in the loss domain than in the gain domain. (3) Only Equations (2) and (4) are insufficient for the generalization of characteristics of the weighting function. (4) For the systematical generalization of the change of risk attitude, the characteristics of the following prospects must be explored in more detail: Prospect (A) ($Y,p) and Prospect (B) ($X,1), where p is a smaller probability, and (Y is by far larger than X).

Original language | English |
---|---|

Pages (from-to) | 4160-4167 |

Number of pages | 8 |

Journal | Procedia Manufacturing |

Volume | 3 |

DOIs | |

Publication status | Published - 2015 |

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### Keywords

- Behavioral economics
- Change of risk attitude
- Irrationality
- Prospect theory
- Reflection effect

### ASJC Scopus subject areas

- Artificial Intelligence
- Industrial and Manufacturing Engineering

### Cite this

*Procedia Manufacturing*,

*3*, 4160-4167. https://doi.org/10.1016/j.promfg.2015.07.390

**Irrational Properties of Risk Attitude in Decision Making.** / Murata, Atsuo; Moriwaka, Makoto; Ohta, Yukio.

Research output: Contribution to journal › Article

*Procedia Manufacturing*, vol. 3, pp. 4160-4167. https://doi.org/10.1016/j.promfg.2015.07.390

}

TY - JOUR

T1 - Irrational Properties of Risk Attitude in Decision Making

AU - Murata, Atsuo

AU - Moriwaka, Makoto

AU - Ohta, Yukio

PY - 2015

Y1 - 2015

N2 - The aim of this study was to investigate the irrationality in decision making on risk attitude. More concretely, the likelihood of reflection effect in decision making was investigated and compared between two conditions (the reflection effect from the risk seeking choice to the risk aversive choice and that from the risk aversive choice to the risk seeking choice). Second, the condition (p-value (probability of gain or loss) in for the reversal of choice (change of risk attitude) was identified and compared between gain and loss domains. In such a way, the irrational property in decision making on risk attitude was pointed out. On the basis of such an approach, it was discussed how decision making on choosing one of the two prospects (A) ($Y, p) and (B) ($X,1) should be systematically treated in order to generalize the behavior of changing risk attitude under the condition of a smaller value of p and (Y is by far larger than X). Moreover, it was also pointed out that the derivation of the property of weighting function in prospect theory using a simple demonstrative decision making paradigm cannot be generalized and is not proper for verifying and deriving this property. The results were as follows: (1) While the reflective effect from the risk seeking choice to the risk aversive choice readily occurred when the occurrence probability of the larger gain was low, the reflective effect from the risk aversive choice to the risk seeking choice was unlikely and didn't readily occur. (2) The larger change (increment or decrement) of p-value was necessary to change the risk attitude (from risk aversive to risk seeking, and vice versa) in the loss domain than in the gain domain. (3) Only Equations (2) and (4) are insufficient for the generalization of characteristics of the weighting function. (4) For the systematical generalization of the change of risk attitude, the characteristics of the following prospects must be explored in more detail: Prospect (A) ($Y,p) and Prospect (B) ($X,1), where p is a smaller probability, and (Y is by far larger than X).

AB - The aim of this study was to investigate the irrationality in decision making on risk attitude. More concretely, the likelihood of reflection effect in decision making was investigated and compared between two conditions (the reflection effect from the risk seeking choice to the risk aversive choice and that from the risk aversive choice to the risk seeking choice). Second, the condition (p-value (probability of gain or loss) in for the reversal of choice (change of risk attitude) was identified and compared between gain and loss domains. In such a way, the irrational property in decision making on risk attitude was pointed out. On the basis of such an approach, it was discussed how decision making on choosing one of the two prospects (A) ($Y, p) and (B) ($X,1) should be systematically treated in order to generalize the behavior of changing risk attitude under the condition of a smaller value of p and (Y is by far larger than X). Moreover, it was also pointed out that the derivation of the property of weighting function in prospect theory using a simple demonstrative decision making paradigm cannot be generalized and is not proper for verifying and deriving this property. The results were as follows: (1) While the reflective effect from the risk seeking choice to the risk aversive choice readily occurred when the occurrence probability of the larger gain was low, the reflective effect from the risk aversive choice to the risk seeking choice was unlikely and didn't readily occur. (2) The larger change (increment or decrement) of p-value was necessary to change the risk attitude (from risk aversive to risk seeking, and vice versa) in the loss domain than in the gain domain. (3) Only Equations (2) and (4) are insufficient for the generalization of characteristics of the weighting function. (4) For the systematical generalization of the change of risk attitude, the characteristics of the following prospects must be explored in more detail: Prospect (A) ($Y,p) and Prospect (B) ($X,1), where p is a smaller probability, and (Y is by far larger than X).

KW - Behavioral economics

KW - Change of risk attitude

KW - Irrationality

KW - Prospect theory

KW - Reflection effect

UR - http://www.scopus.com/inward/record.url?scp=85009953707&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85009953707&partnerID=8YFLogxK

U2 - 10.1016/j.promfg.2015.07.390

DO - 10.1016/j.promfg.2015.07.390

M3 - Article

VL - 3

SP - 4160

EP - 4167

JO - Procedia Manufacturing

JF - Procedia Manufacturing

SN - 2351-9789

ER -