Prospect Theory, Mental Accounting, and Differences in Aggregated and Segregated Evaluation of Lottery Portfolios

Thomas Langer () and Martin Weber
Additional contact information
Thomas Langer: Universität Mannheim, Lehrstuhl für Bankbetriebslehre, L 5, 2, 68131 Mannheim, Germany

Management Science, 2001, vol. 47, issue 5, 716-733

Abstract: If individuals have to evaluate a sequence of lotteries, their judgment is influenced by the presentation mode. Experimental studies have found significantly higher acceptance rates for a sequence of lotteries if the overall distribution was displayed instead of the set of lotteries itself. Mental accounting and loss aversion provide an easy and intuitive explanation for this phenomenon. In this paper we offer an explanation that incorporates further evaluation concepts of Prospect Theory. Our formal analysis of the difference in aggregated and segregated portfolio evaluation demonstrates that the higher attractiveness of the aggregated presentation mode is not a general phenomenon (as suggested in the literature) but depends on specific parameters of the lotteries. The theoretical findings are supported by an experimental study. In contrast to the existing evidence and in line with our theoretical results, we find for specific types of lotteries an even lower acceptance rate if the overall distribution is displayed.

Keywords: Prospect Theory; Mental Accounting; Evaluation Procedures (search for similar items in EconPapers)
Date: 2001
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (49)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.47.5.716.10483 (application/pdf)

Related works:
Working Paper: Prospect-Theory, Mental Accounting and Differences in Aggregated and Segregated Evaluation of Lottery Portfolios (1999)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:47:y:2001:i:5:p:716-733

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().