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Keywords:

  • bargaining;
  • negotiations;
  • framing;
  • prospect theory

An actor's frame of reference significantly affects that actor's risk attitude. Although the frame of reference is often taken as a given, earlier work shows it to be the result of an actor's assumptions and beliefs, which can be manipulated by a second actor in a bargaining situation. As modeled here, confidence in selected assumptions can be manipulated by one of two means: changing the confidence of the actor about the future domain, and getting the actor to adopt a particular domain by discounting the utility of a course of action. Both methods force a change in the perceived domain and a shift in risk attitude. In addition to showing manipulation of an actor's frame, the model adds to our understanding of Kahneman and Tversky's original expression of prospect theory.