Estimating Different Value Functions of the Prospect Theory According to Individual Decision-Making Styles

Abstract

This study aims to explore human risk tolerance behaviors by applying decision-making styles, which refer to individual habits or response patterns during decision-making process. Specifically, this research estimates the sample's prospect theory value function by decision-making style and statistically tests the difference in coefficients of the value function using ANOVA and Duncan grouping. The results show that individuals with rational and avoidant decision-making styles tend to display risk-averse tendencies in situations involving future prospective gains, whereas those with dependent, intuitive, and spontaneous styles exhibit risk-seeking tendencies. Conversely, individuals with rational and dependent decision-making styles demonstrate risk-averse tendencies in situations involving future prospective losses, whereas those with avoidant, intuitive, and spontaneous styles display risk-seeking tendencies. This study presents empirical evidence that decision-making styles can account for all combinations of risk attitudes toward gains and losses situations. This finding demonstrates a granular level in risk attitudes that prospect theory cannot solely explain.