Effect of choice set on valuation of risky prospects

Current models of decision making under risk assume access to the absolute magnitudes of gamble attributes. The two experiments presented here provide evidence that decisions under risk are based, in addition, on the context of the decision. In Experiment 1 the set of options offered as certainty equivalents was shown to determine the value of simple gambles of the form “p chance of £x”. Experiment 2 employed a novel procedure where the payment structure was such that it was optimal for participants to provide truthful certainty equivalents. Again, the context provided by the set of certainty equivalents influenced the choice of certainty equivalent