Choosing the sure gain and the sure loss: uncertainty avoidance and the reflection effect

Choosing the sure gain and the sure loss: uncertainty avoidance and the reflection effect Purpose – The paper aims to investigate the role of uncertainty avoidance (UA) as a moderator of Prospect Theory’s reflection effect (i.e. the simultaneous choice of a sure gain and a risky loss). We expect that higher-UA consumers, seeking certainty, will shun risk across both gains and losses such that their choices will be inconsistent with the reflection effect. Design/methodology/approach – We report three studies in which participants choose between risk and certainty. We use the stimuli from the original Prospect Theory paper, measure UA using an individual-level scale and conduct controlled experimental (laboratory) studies. Findings – We show that, compared to lower-UA consumers, higher-UA consumers demonstrate the reflection effect less frequently in a variety of settings (small/large stakes and within/between subjects comparisons). Mediation tests reveal that higher-UA consumers anchor on the sure loss and stay with their choice because they prefer the certainty of the sure (smaller) loss to the possibility of a possible (larger) loss (a dual-mediation mechanism). Research limitations/implications – The results have important implications for marketing practice. They show that quantifying uncertainty into a probability number is not enough to eliminate the uncertainty of the situation, and that UA is likely serve as a boundary condition to many of the traditional heuristics of judgment and decision-making. Originality/value – This is the first paper to demonstrate that UA can moderate the reflection effect (using the stimuli in the original Prospect Theory paper). Therefore, it sets an agenda for future researchers who may want to use these findings to calibrate price/uncertainty tradeoffs within higher-UA segments. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Consumer Marketing Emerald Publishing

Choosing the sure gain and the sure loss: uncertainty avoidance and the reflection effect

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
0736-3761
DOI
10.1108/JCM-04-2014-0949
Publisher site
See Article on Publisher Site

Abstract

Purpose – The paper aims to investigate the role of uncertainty avoidance (UA) as a moderator of Prospect Theory’s reflection effect (i.e. the simultaneous choice of a sure gain and a risky loss). We expect that higher-UA consumers, seeking certainty, will shun risk across both gains and losses such that their choices will be inconsistent with the reflection effect. Design/methodology/approach – We report three studies in which participants choose between risk and certainty. We use the stimuli from the original Prospect Theory paper, measure UA using an individual-level scale and conduct controlled experimental (laboratory) studies. Findings – We show that, compared to lower-UA consumers, higher-UA consumers demonstrate the reflection effect less frequently in a variety of settings (small/large stakes and within/between subjects comparisons). Mediation tests reveal that higher-UA consumers anchor on the sure loss and stay with their choice because they prefer the certainty of the sure (smaller) loss to the possibility of a possible (larger) loss (a dual-mediation mechanism). Research limitations/implications – The results have important implications for marketing practice. They show that quantifying uncertainty into a probability number is not enough to eliminate the uncertainty of the situation, and that UA is likely serve as a boundary condition to many of the traditional heuristics of judgment and decision-making. Originality/value – This is the first paper to demonstrate that UA can moderate the reflection effect (using the stimuli in the original Prospect Theory paper). Therefore, it sets an agenda for future researchers who may want to use these findings to calibrate price/uncertainty tradeoffs within higher-UA segments.

Journal

Journal of Consumer MarketingEmerald Publishing

Published: Aug 5, 2014

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