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Jan. 28th, 2007 04:21 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
watertankOverweighting of small probabiJities contributes to the popularity of both lotteries and insurance. Underweighting of high probabilities,contributes both to the prevalence of risk aversion in choices between probable gains and sure things, and to the prevalence of risk seeking in choices between probable and sure losses. Risk aversion for gains and risk seeking for losses are further enhanced by the curvature of the value function in the two domains. Tversky, Kahneman, p. 64
First, there is abundant evidence that subjective judgments of probability do not conform to the rules of probability theory (Kahneman, Slavic and Tversky, 1982). Second, Ellsberg's example and more recent studies of choice under uncertainty indicate that people prefer some sources of uncertainty over others. For example, Heath and Tversky (1991) found that individuals consistently preferred bets on uncertain events in their area of expertise over matched bets on chance devices, although the former are ambIguous and the latter are not. p.64
First, there is abundant evidence that subjective judgments of probability do not conform to the rules of probability theory (Kahneman, Slavic and Tversky, 1982). Second, Ellsberg's example and more recent studies of choice under uncertainty indicate that people prefer some sources of uncertainty over others. For example, Heath and Tversky (1991) found that individuals consistently preferred bets on uncertain events in their area of expertise over matched bets on chance devices, although the former are ambIguous and the latter are not. p.64
