This Article Full Text (PDF) References Alert me when this article is cited Alert me if a correction is posted Services Email this article to a friend Similar articles in this journal Alert me to new issues of the journal Download to citation manager Citing Articles Citing Articles via HighWire Citing Articles via Google Scholar Google Scholar Articles by Langer, T. Articles by Weber, M. Search for Related Content

Prospect Theory, Mental Accounting, and Differences in Aggregated and Segregated Evaluation of Lottery Portfolios

Universität Mannheim, Lehrstuhl für Bankbetriebslehre, L 5, 2, 68131 Mannheim, Germany
Universität Mannheim, Lehrstuhl für Bankbetriebslehre, L 5, 2, 68131 Mannheim, Germany
langer{at}bank.bwl.uni-mannheim.de
weber{at}bank.bwl.uni-mannheim.de

If individuals have to evaluate a sequence of lotteries, their judgment is influenced by the presentation mode. Experimental studies have found significantly higher acceptance rates for a sequence of lotteries if the overall distribution was displayed instead of the set of lotteries itself. Mental accounting and loss aversion provide an easy and intuitive explanation for this phenomenon. In this paper we offer an explanation that incorporates further evaluation concepts of Prospect Theory. Our formal analysis of the difference in aggregated and segregated portfolio evaluation demonstrates that the higher attractiveness of the aggregated presentation mode is not a general phenomenon (as suggested in the literature) but depends on specific parameters of the lotteries. The theoretical findings are supported by an experimental study. In contrast to the existing evidence and in line with our theoretical results, we find for specific types of lotteries an even lower acceptance rate if the overall distribution is displayed.

Key Words: Prospect Theory; Mental Accounting; Evaluation Procedures
History: Received: July 13, 1999;

This article has been cited by other articles:

				P. P. Wakker, D. R. M. Timmermans, and I. Machielse The Effects of Statistical Information on Risk and Ambiguity Attitudes, and on Rational Insurance Decisions Management Science, November 1, 2007; 53(11): 1770 - 1784. [Abstract] [PDF]

				S. C. Jones Implications of behavioral decision theory for health marketing Marketing Theory, March 1, 2007; 7(1): 75 - 91. [Abstract] [PDF]

				M. Baucells and F. H. Heukamp Stochastic Dominance and Cumulative Prospect Theory Management Science, September 1, 2006; 52(9): 1409 - 1423. [Abstract] [PDF]

				E. Bendoly, J. D. Blocher, K. M. Bretthauer, S. Krishnan, and M. A. Venkataramanan Online/In-Store Integration and Customer Retention Journal of Service Research, May 1, 2005; 7(4): 313 - 327. [Abstract] [PDF]