CONTINGENT PREFERENCES - LOSS AVERSION AND TRADEOFF CONTRAST IN DECISION-MAKING

There is a growing body of evidence that people's choices between risk y and riskless options depend on the framing of the problem and the co ntext of choice, contrary to the assumptions of description invariance and context independence that underlie rational decision theories. Th is article reviews these phenomena and discusses their implications. T he first part discusses the evidence for reference dependence and intr oduces the principle of loss aversion for both certain and uncertain c hoice. The second part discusses context effects in choice, and introd uces the principle of tradeoff contrast. Finally, we contrast the clas sical theory of choice that is based on the standard assumption of rat ionality with a constructive approach suggested by psychological resea rch.