Reflecting on reflection: prospect theory, our behaviors, and our environment

Adam Oliver

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: In a previously published article, I reported some tests of prospect theory's reflection effect over outcomes defined by money and life years gained from treatment. Those results suggested qualified support for the reflection effect over money outcomes and strong support over longevity outcomes. This article reruns those tests while accounting for the intensity of individual risk attitudes, and, overall, show consistency with the reflection effect. However, I argue that these results do not necessarily offer support for the explanatory power of prospect theory. Rather, the results may be driven by evolved responses to circumstances that provoke perceptions of scarcity and abundance. Therefore, from an ecological perspective, behavioral patterns such as those that are consistent with the reflection effect, which, by extension, tend to be considered as erroneous or biased by most behavioral economists because they conflict with the postulates of rational choice theory, may not be unreasonable. Recognizing as such is important when considering how behavioral insights ought to inform public policy design and implementation.

Keywords: expected utility theory; prospect theory; reflection effect; risk intensity; risk sensitivity theory (search for similar items in EconPapers)
JEL-codes: B21 C12 C91 (search for similar items in EconPapers)
Pages: 11 pages
Date: 2024-01-01
New Economics Papers: this item is included in nep-cbe and nep-upt
References: View references in EconPapers View complete reference list from CitEc
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Published in Behavioural Public Policy, 1, January, 2024, 8(1), pp. 173 - 183. ISSN: 2398-063X

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