Relative theory of choice: preference change for risky choices.

In three experiments we studied the extent to which theories of decision-making and
memory can predict people’s preferences. Studding risky decisions, we aimed to answer
questions about human preferences, prompted by similarities between the leading
economic theory Expected Utility Theory (EUT) and the leading psychological theory of
human choice under risk - Prospect Theory (PT). People’s behaviour in the face of risk
implies that they judge and weight the probability of risky events in characteristic ways
that deviate from EUT. Nonetheless, both EUT and PT frameworks share a common
assumption: people’s risk preferences and decisions under risk and uncertainty are
independent of task. Accordingly, we studied (i) the lability of human preferences and
their relation to choice justifications given in risky decision-making scenarios, (ii) the
dynamics of preference formation for choice with monetary gambles and (iii) the limits of
existing theoretical accounts (e.g., UT and PT) by contrasting them with a new theory of
risky choice based on the impact of context, complexity and prior choices. The results
of all three experiments are not anticipated by EUT, PT or experience-based decision
research (Hertwig, Barron, Weber, & Erev, 2004).We found evidence that people do
not have underlying preferences for risk; instead, context, complexity and prior choices
determine preferences even when the utilities (risk and reward) of alternative options are
known