Top Qs
Timeline
Chat
Perspective
Certainty effect
Psychological effect From Wikipedia, the free encyclopedia
Remove ads
The certainty effect is the psychological effect resulting from the reduction of probability from certain to probable (Tversky & Kahneman 1986). It is an idea introduced in prospect theory.
This article relies largely or entirely on a single source. (December 2010) |
Normally a reduction in the probability of winning a reward (e.g., a reduction from 80% to 20% in the chance of winning a reward) creates a psychological effect such as displeasure to individuals, which leads to the perception of loss from the original probability thus favoring a risk-averse decision. However, the same reduction results in a larger psychological effect when it is done from certainty than from uncertainty.
Remove ads
Example
Tversky & Kahneman (1986) illustrated the certainty effect by the following examples.
First, consider this example:
Which of the following options do you prefer?
- A. a sure gain of $30
- B. 80% chance to win $45 and 20% chance to win nothing
In this case, 78% of participants chose option A while only 22% chose option B. This demonstrates the typical risk-aversion phenomenon in prospect theory and framing effect because the expected value of option B ($45x0.8=$36) exceeds that of A by 20%.
Now, consider this problem:
Which of the following options do you prefer?
- C. 25% chance to win $30 and 75% chance to win nothing
- D. 20% chance to win $45 and 80% chance to win nothing
In this case, 42% of participants chose option C while 58% chose option D.
As before, the expected value of the first option ($30x0.25=$7.50) was 20% lower than that of option D ($45x0.2=9) however, when neither option was certain, risk-taking increased.
Remove ads
See also
Bibliography
Wikiwand - on
Seamless Wikipedia browsing. On steroids.
Remove ads