Risky business

A new article in the latest issue of the PNAS entitled “Predicting risky choices from brain activity patterns (h/t to Shannon Selin).

This study reminds me of Daniel Kahneman and Amos Tversky’s work:

Prospect theory concerns the psychophysics of wealth utility: that is, the perceived tradeoffs between potential outcomes and the probability of some outcome occurring. Kahneman and Tversky reworked Bernoulli’s long established orthodoxy of wealth utility that supposedly explained loss aversion through quantifiable states of wealth. Instead, they took the view that by asking subjective questions rather than propositional (or abstract) questions regarding terms of loss and gain, they presented a richer explanation for loss aversion. They found that that though agents like winning and dislike losing, they in effect are orientated to dislike losing more. Kahneman and Tversky (1979) initially articulated decisions under risk (as opposed to decisions under uncertainty) involving at most two non-zero outcomes. Later as cumulative prospect theory (1992) they accommodated decisions under uncertainty and risky conditions that employs cumulative, rather than separable decision weights with any number of outcomes.

Kahneman, D., & Tversky, A. 1979. Prospect theory: An analysis of decisions under risk. Econometrica, Vol. 47, No. 2: 263-291.

Kahneman, D., & Tversky, A. 1992. Advances in prospect theory: Cumulative representation of uncertainty. Journal of Risk and Uncertainty 5 (4): 297–323.