Accommodating stake effects under prospect theory

One of the stylized facts underlying prospect theory is a four-fold pattern of risk preferences. People have been shown to be risk seeking for small probability gains and large probability losses, while being risk averse for large probability gains and small probability losses. Another fourfold pattern of risk preferences over outcomes, postulated by Harry Markowitz in 1952, has received much less attention and is currently not integrated into prospect theory. In two experiments, we show that risk preferences may change over outcomes. While we find people to be risk seeking for small outcomes, this turns to risk neutrality and later risk aversion as stakes increase. We then show how a one-parameter logarithmic utility function fits such stake effects significantly better under prospect theory than the power or exponential functions mostly used when fitting prospect theory models. We further investigate the extent to which the use of ill-suited functional forms to represent utility may result in violations of prospect theory, and whether such violations disappear when using logarithmic utility

Using social and behavioural science to support COVID-19 pandemic response

The COVID-19 pandemic represents a massive global health crisis. Because the crisis requires large-scale behaviour change and places significant psychological burdens on individuals, insights from the social and behavioural sciences can be used to help align human behavior with the recommendations of epidemiologists and public health experts. Here we discuss evidence from a selection of research topics relevant to pandemics, including work on navigating threats, social and cultural influences on behaviour, science communication, moral decision-making, leadership, and stress and coping. In each section, we note the nature and quality of prior research, including uncertainty and unsettled issues. We identify several insights for effective response to the COVID-19 pandemic, and also highlight important gaps researchers should move quickly to fill in the coming weeks and months

ABCs of principal-agent interactions: Accurate predictions, biased processes, and contrasts between working and delegating

We experimentally investigate people’s evaluations of incentive pay contracts and people’s predictions of others’ evaluations of incentive pay contracts. We emphasize that the construction of evaluations and predictions often includes two substeps, involving likelihood judgment and likelihood weighting. Predictors appear to be biased at both substeps but in opposing directions. Accurate overall predictions thus sometimes reflect two errors that are of the same magnitude and thereby offset. Moreover, predictions can become more inaccurate if one step is debiased but the other is left untouched. Importantly, principals deciding whether to delegate a task are susceptible to just one of the biases. Delegation assessments are thus often flawed, reflecting a single error that is not offset