Psychology of Risky Decisions

  • John W. Payne


Most definitions of a decision problem include (1) the courses of action or alternatives available to the decision maker; (2) the possible outcomes and values attached to them, conditional on the actions; and (3) the events or contingencies that relate actions to outcomes (Huber, 1980; Tversky & Kahneman, 1981). The evaluation and/or choice among a set of gambles captures all three of the basic informational elements that constitute most decision problems. Consequently, the study of the psychological processes involved in judgments and choices among gambles has been one of the most active areas of decision research (see Einhorn & Hogarth, 1981; Slovic, Fischhoff, & Lichtenstein, 1977). Understanding how individuals make decisions under risk also has direct relevance for improving decisions in business (Libby & Fishburn, 1977) and public policy (Slovic, 1978). Decision analysts and others whose job is to improve decision performance often use responses to simple gambles as inputs to normative models (Keeney & Raiffa, 1976).


Decision Maker Prospect Theory Decision Strategy Choice Rule Expect Utility Theory 
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Copyright information

© Plenum Press, New York 1985

Authors and Affiliations

  • John W. Payne
    • 1
  1. 1.Fuqua School of BusinessDuke UniversityDurhamUSA

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