Financial prospect relativity

We report three studies in which methodologies from psychophysics are adapted to investigate context effects on individual financial decision‐making under risk. The aim was to determine how the range and the rank of the options offered as saving amounts and levels of investment risk influence people's decisions about these variables. In the range manipulation, participants were presented with either a full range of choice options or a limited subset, while in the rank manipulation they were presented with a skewed set of feasible options. The results showed that choices are affected by the position of each option in the range and the rank of presented options, which suggests that judgments and choices are relative. Copyright © 2006 John Wiley & Sons, Ltd

Actuarial science · Behavioral economics · Context (archaeology · Econometrics · Economics · Financial risk · Investment (military · Investment Decisions · Microeconomics · Outcome (game theory · Political science · Position (finance · Range (aeronautics · Rank (graph theory · Set (abstract data type · Computer Science · Decision-Making and Behavioral Economics · Engineering · Leadership, Behavior, and Decision-Making Studies · Mathematics · Psychological and Temporal Perspectives Research · Finance

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