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Valuation of Vague Prospects with Mixed Outcomes

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Decision Modeling and Behavior in Complex and Uncertain Environments

Part of the book series: Springer Optimization and Its Applications ((SOIA,volume 21))

Previous work on the joint effects of vagueness in probabilities and outcomes in decisions about risky prospects has documented the decision-makers' (DMs) differential sensitivity to these two sources of imprecision. Budescu et al. [6] report two studies in which DMs provided certainty equivalents (CEs) for precise and vague prospects involving gains or losses. They found (a) higher concern for the precision of the outcomes than that of the probabilities, (b) vagueness seeking for positive outcomes, (c) vagueness avoidance for negative outcomes, and (d) stronger attitudes towards vague gains than for vague losses (see also, [13]). They proposed and tested a new generalization of prospect theory (PT) for options with vaguely specified attributes.

The present work extends this model to the case of vague mixed prospects.We report results of a new experiment where 40 DMs used two methods (direct judgments of numerical CEs, and inferred CEs from a series of pairwise comparisons) of valuation of positive (gains), negative (losses), and mixed (gains and losses) prospects with vague outcomes. The results confirm the previous findings of vagueness seeking in the domain of gains, vagueness avoidance for losses, and stronger effects of vagueness in the domain of gains. The CEs of mixed prospects are also consistent with this pattern. The DMs overvalue prospects with vaguely specified gains and precise losses, and undervalue prospects with precisely specified gains and imprecise losses, relative to mixed prospects with precise parameters. Parameter estimates of the generalized model indicate that in the mixed cases the attitudes to vagueness in the two domains are slightly less pronounced, and they are treated more similarly to each other than in the strictly positive, or negative, cases.

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Author information

Authors and Affiliations

  1. Department of Psychology, University of Illinois at Urbana-Champaign, 61820, Champaign, IL, USA

    David V. Budescu

  2. Department of Psychology, University of Kansas, 66045, Lawrence, KS, USA

    Sara Templin

Authors
  1. David V. Budescu
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  2. Sara Templin
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Editor information

Editors and Affiliations

  1. Management and Organizations, University of Arizona, 85721, Tucson, AZ, USA

    Tamar Kugler

  2. Dept. Industrial & Systems Engineering, University of Florida, 303 Weil Hall, 32611-6595, Gainesville, FL, USA

    J. Cole Smith

  3. Eller College of Management, University of Arizona, 1130 E. Helen St, 85721, Tucson, AZ, USA

    Terry Connolly

  4. College of Engineering Dept. Systems & Industrial Engineering, University of Arizona, 1127 E. James E. Rogers Way, 85721-0020, Tucson, AZ, USA

    Young-Jun Son

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Budescu, D.V., Templin, S. (2008). Valuation of Vague Prospects with Mixed Outcomes. In: Kugler, T., Smith, J.C., Connolly, T., Son, YJ. (eds) Decision Modeling and Behavior in Complex and Uncertain Environments. Springer Optimization and Its Applications, vol 21. Springer, New York, NY. https://doi.org/10.1007/978-0-387-77131-1_11

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