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  • Cited by 1
  • Print publication year: 2006
  • Online publication date: June 2012

2 - Relative Importance of Probabilities and Payoffs in Risk Taking

Summary

This chapter is concerned with conceptualizing the process by which a person makes decisions about gambles whose probabilities and payoffs are explicitly stated.

Gambles commonly are characterized as multidimensional stimuli. For example, a two-outcome gamble in which one outcome is a gain of some amount of money and the other is a loss can be described by its location on four basic risk dimensions – probability of winning (PW), amount to win ($W), probability of losing (PL), and amount to lose ($L). The essence of an adequate descriptive theory of risk taking is a thorough understanding of the way in which people go about integrating information from these basic risk dimensions when evaluating gambles.

The influence of these basic risk dimensions is examined here with particular emphasis on two ideas. The first is “importance beliefs.” By this is meant that when a person evaluates a bet, he pays more attention to some risk dimensions than to others because he believes that these particular dimensions are most important for his present decision. For example, a person with very little money and great fear of losing it may focus his attention on the amount to lose ($L) and base his decisions almost exclusively on this dimension, largely disregarding the other information provided in the bet. Such beliefs about the relative importance of the risk dimensions may derive from previous experience, from logical analysis of the decision task, or even from quite irrational fears or prejudices.