Reflection in Preferences for Multioutcome Lotteries

Classical theories of risky decision making assume that people are risk averse. This means, in part, that people tend to reject gambles or lotteries in favor of actuarially equivalent sure things. According to prospect theory (Kahneman and Tversky, 1979), however, risk aversion applies primarily to lotteries involving gains. In the domain of losses, people are hypothesized to be primarily risk seeking, tending to prefer a gamble to an actuarially equivalent sure loss. This switch of risk preference from the domain of gains to the domain of losses is termed the reflection effect. Kahneman and Tversky presented evidence supporting the reflection effect using a limited set of two-outcome gambles. This study examined the robustness of the reflection effect for multioutcome lotteries both within subjects and across subjects differing in risk style. Consistent with the findings of Hershey and Schoemaker (1980) for the two-outcome case, the results demonstrate that the reflection effect is weak and irregular both at the group and at the individual level