Experience Theory, or How Desserts Are Like Losses

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Abstract

Although many experiments have explored risk preferences for money, few have systematically assessed risk preferences for everyday experiences. We propose a conceptual model and provide convergent evidence from 7 experiments to suggest that, in contrast to a typical “zero” reference point for choices on money, reference points for choices of experiences are set at more extreme outcomes, leading to concave utility for negative experiences but convex utility for positive experiences. As a result, people are more risk-averse for negative experiences such as disgusting foods—as for monetary gains—but more risk-seeking for positive experiences such as desserts—as for monetary losses. These risk preferences for experiences are robust to different methods of elicitation.

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