“ Characterizing Individual Differences in Risk Preferences”
Barbara A. Mellers, Ph.D
University of Pennsylvania
I’ll discuss a theory of risk preferences between sure things and binary gambles. The theory posits that hedonic sensitivity to change (loss aversion or gain seeking) and beliefs about outcomes (optimism or pessimism) drive risk preferences. For these choices, the sure thing is a natural reference point for evaluating gamble outcomes; it is what happens if risk is rejected. Furthermore, the valence of the reference point influences both drivers of risk preferences. When reference points are perceived as affectively positive, loss aversion and pessimism are likelier and often prompt risk aversion. When reference points are affectively negative, gain seeking and optimism are likelier and encourage risk seeking. Reference point theory predicts which risk preferences are associated with orthogonal combination of these drivers. Risk averters are often loss-averse pessimists, and risk seekers are often gain-seeking optimists, but other characterizations can apply. Three studies show that reference point theory accounts for risk preferences and sheds light on why people take and avoid risk.
Barbara Mellers is the George I. Heyman University Professor at the University of Pennsylvania, with cross-appointments in School of Arts and Sciences and the Wharton School (since 2011). She studies how and why people form beliefs, judgments, and preferences. Her work has focused on how emotions, self-interest, past mistakes, sensitivities to risk and perceptions of fairness affect choice. She is an author of almost 100 articles and book chapters, co-editor of two books and a member of numerous prestigious editorial boards. She served as president of the Judgment and Decision Making Society, was a five-year National Science Foundation Presidential Young Investigator and has received major research support from the NSF.
