The effects of framing, reflection, probability, and payoff on risk preference in choice tasks

A meta-analysis of Asian-disease-like studies is presented to identify the factors which determine risk preference. First the confoundings between probability levels, payoffs, and framing conditions are clarified in a task analysis. Then the role of framing, reflection, probability, type, and size of payoff is evaluated in a meta-analysis. It is shown that bidirectional framing effects exist for gains and for losses. Presenting outcomes as gains tends to induce risk aversion, while presenting outcomes as losses tends to induce risk seeking. Risk preference is also shown to depend on the size of the payoffs, on the probability levels, and on the type of good at stake (money/property vs human lives). In general, higher payoffs lead to increasing risk aversion. Higher probabilities lead to increasing risk aversion for gains and to increasing risk seeking for losses. These findings are confirmed by a subsequent empirical test. Shortcomings of existing formal theories, such as prospect theory, cumulative prospect theory, venture theory, and Markowitz's utility theory, are identified. It is shown that it is not probabilities or payoffs, but the framing condition, which explains most variance. These findings are interpreted as showing that no linear combination of formally relevant predictors is sufficient to capture the essence of the framing phenomenon. (C) 1999 Academic Press.