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Exploring Switching Values in Prospect Theory: A Quantitative Analysis

This text outlines a methodology for determining switching values (y1, y2, y3, y4) in prospect theory. Participants evaluate their preferences between different monetary prospects, tinkering with €Y values, to identify thresholds at which their preferences switch. By substituting values from previous computations, individuals can analyze their decision-making processes under uncertainty. The study emphasizes the transition from preferring smaller or larger values based on the variances of the prospect in question, providing insights into behavioral economics.

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Exploring Switching Values in Prospect Theory: A Quantitative Analysis

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  1. Participant name ... TO2.0 Answer Sheet y1 = €. ... First value y2 = €. ... Second value y3 = €. ... Third value y4 = €. ... Fourth value

  2. TO2.1 Determining first number y1 Left prospect ½ ½ ½ ½ Right prospect €25 €Y €3 €16 • For small values of Y you prefer the right prospect. • For large values of Y you prefer the left prospect. • For some value of Y, which we call y1, your preference switches. • Fill this switching value in below, and then on page TO2.0. y1 = ...

  3. TO2.2 Determining second number y2 First substitute your value y1 here. ... ½ ½ €3 €16 ½ ½ €Y • You have substituted your value y1. • Determine your switching value of Y again. • We call it y2 (obviously, y2 > y1). • Fill it in below and on page TO2.0. y2 = ...

  4. TO2.3 Determining third number y3 First substitute your value y2 here. ... ½ ½ €3 €16 ½ ½ €Y • You have substituted your value y2. • Determine your switching value of Y again. • We call it y3 (obviously, y3 > y2). • Fill it in below and on page TO2.0. y3 = ...

  5. TO2.4 Determining fourth number y4 First substitute your value y3 here. ... ½ ½ €3 €16 ½ ½ €Y • You have substituted your value y3. • Determine your switching value of Y again. • We call it y4 (obviously, y4 > y3). • Fill it in below and on page TO2.0. y4 = ...

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