Barbara Mellers, Ph.D. (Penn)
George I. Heyman University Professor
Wharton School of Business | Department of Psychology
University of Pennsylvania
“Characterizing Risk Preferences”
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.
Barbara Mellers is the I. George Heyman University Professor at the University of Pennsylvania, teaching in both the Marketing Department at Wharton and the Psychology Department in the School of Arts and Sciences. Prior to joining Penn, she spent a decade as Professor of Marketing and Organizational Behavior and 15 years as Professor of Psychology at UC Berkeley. Her areas of research include judgment and decision making, behavioral decision theory, consumer behavior, emotions, fairness, preference measurement, forecasting and public policy.
Professor Mellers is interested in how people develop beliefs, formulate preferences, and arrive at choices. In her earlier work, she developed models of judgments and decisions that explained deviations from rationality due to fairness concerns, anticipated emotions, contextual effects, and response mode effects. She use laboratory studies to manipulate and control factors that described psychological processes.
In the last decade, Professor Mellers has focused primarily on ways to improve judgments and decisions. Using large field experiment and laboratory studies, she has worked on interventions to boost the accuracy of human forecasting, from elicitation methods such as surveys and prediction markets, to probability training, social interactions, tracking of elite forecasters, and aggregation.