For many decades, economists have relied on expected utility theory to describe risk preferences. Different choices imply different utility functions that map wealth to subjective value and reflect attitudes toward risk. Psychologists, on the other hand, have modeled risk preferences using utilities and decision weights that allow for loss aversion and rank-dependent weighting. In this talk, we offer a different approach to risk preference that relies on risky choices between sure things and gambles and judged emotions of the pleasure or pain of options and gamble outcomes. We offer a framework for risky choices with two dimensions: hedonic sensitivities (loss averse or gain seeking) and decision weights (optimism or pessimism about possible outcomes). In three studies, we manipulate or measure the reference point (which we assume is the sure thing) and show that risk preferences, hedonic sensitivities and decision weights vary systematically with the valence of the reference point. When it is pleasurable, people are frequently risk averse, loss averse and pessimistic. And when it is painful, people are more likely to be risk seeking, gain seeking and optimistic. The drivers or risk preferences vary across people and contexts. Our framework allows for novel combinations of these drivers and provides a different way to understand the psychology of risky choice.
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