Money, Kisses, and Electric Shocks: On the Affective Psychology of Risk

TLDR

Prospect theory’s S‑shaped weighting function is commonly attributed to the psychophysics of chance. The study proposes an affective deconstruction of the weighting function based on two assumptions. The authors assume that preferences depend on affective reactions to outcomes and that outcomes vary in affect richness even when monetary values are held constant. The affective approach predicts that weighting functions will be more S‑shaped for affect‑rich lotteries, leading to greater sensitivity near certainty and less sensitivity to intermediate probabilities; this was confirmed by observing that an affect‑poor prize was preferred under certainty but reversed under low probability, suggesting probability‑outcome independence may not hold across affective values.

Abstract

Prospect theory's S-shaped weighting function is often said to reflect the psychophysics of chance. We propose an affective rather than psychophysical deconstruction of the weighting function resting on two assumptions. First, preferences depend on the affective reactions associated with potential outcomes of a risky choice. Second, even with monetary values controlled, some outcomes are relatively affect-rich and others relatively affect-poor. Although the psychophysical and affective approaches are complementary, the affective approach has one novel implication: Weighting functions will be more S-shaped for lotteries involving affect-rich than affect-poor outcomes. That is, people will be more sensitive to departures from impossibility and certainty but less sensitive to intermediate probability variations for affect-rich outcomes. We corroborated this prediction by observing probability-outcome interactions: An affect-poor prize was preferred over an affect-rich prize under certainty, but the direction of preference reversed under low probability. We suggest that the assumption of probability-outcome independence, adopted by both expected-utility and prospect theory, may hold across outcomes of different monetary values, but not different affective values.