Determinants of Risk Taking in a Dynamic Uncertain Context

Abstract

We tested the effects of positive and negative framing on risky decision making in a simulated managerial judgement task. Until now the extensive research on framing effects has been characterized by static contexts, explicit probabilities, and hypothetical gambles. In contrast we simulated a more realistic decision making environment in which individuals chose more or less risky goals in a complex dynamic task that featured uncertain outcomes and meaningful consequences. Decision makers chose a series of performance goals under conditions of either potential losses or gains and also received feedback about their goal attainment. Our results failed to replicateProspect Theory predictions about initial gain vs.loss framing typically found in static decision making contexts. In addition, we tested competing hypotheses derived from Prospect Theory and Quasi-Hedonic Editing (QHE) Theory about the effects of performance outcome feedback on subsequent decisions. Consistent with QHE Theory, decision makers who had failed to reach their goals set lower, less risky goals in subsequent decisions. Our findings illustrate the need for further risk taking research in environments that more closely resemble managerial decision making.