Research Article

Financial prospect relativity: context effects in financial decision-making under risk†

  1. Ivo Vlaev1,*,
  2. Nick Chater1,
  3. Neil Stewart2

Article first published online: 30 NOV 2006

DOI: 10.1002/bdm.555

Issue

Journal of Behavioral Decision Making

Journal of Behavioral Decision Making

Volume 20, Issue 3, pages 273–304, July 2007

Additional Information

How to Cite

Vlaev, I., Chater, N. and Stewart, N. (2007), Financial prospect relativity: context effects in financial decision-making under risk. Journal of Behavioral Decision Making, 20: 273–304. doi: 10.1002/bdm.555

Author Information

  1. 1

    Department of Psychology, University College London, London, UK

  2. 2

    Department of Psychology, University of Warwick, Coventry, UK

*Department of Psychology, University College London, London, WC1H 0AP, UK.

  1. †

    The data in this paper were collected while Ivo Vlaev was a doctoral student at the Department of Experimental Psychology, University of Oxford.

Publication History

  1. Issue published online: 29 JUN 2007
  2. Article first published online: 30 NOV 2006

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Keywords:

  • prospect relativity;
  • decision-making;
  • judgment;
  • investment risk;
  • saving decisions;
  • context effects;
  • perception

Abstract

We report three studies in which methodologies from psychophysics are adapted to investigate context effects on individual financial decision-making under risk. The aim was to determine how the range and the rank of the options offered as saving amounts and levels of investment risk influence people's decisions about these variables. In the range manipulation, participants were presented with either a full range of choice options or a limited subset, while in the rank manipulation they were presented with a skewed set of feasible options. The results showed that choices are affected by the position of each option in the range and the rank of presented options, which suggests that judgments and choices are relative. Copyright © 2006 John Wiley & Sons, Ltd.

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