A dual system model of preferences under risk

Abstract

This article presents a dual system model (DSM) of decision making under risk and uncertainty according to which the value of a gamble is a combination of the values assigned to it independently by the affective and deliberative systems. On the basis of research on dual process theories and empirical research in Hsee and Rottenstreich (2004) and Rottenstreich and Hsee (2001) among others, the DSM incorporates (a) individual differences in disposition to rational versus emotional decision making, (b) the affective nature of outcomes, and (c) different task construals within its framework. The model has good descriptive validity and accounts for (a) violation of nontransparent stochastic dominance, (b) fourfold pattern of risk attitudes, (c) ambiguity aversion, (d) common consequence effect, (e) common ratio effect, (f) isolation effect, and (g) coalescing and event-splitting effects. The DSM is also used to make several novel predictions of conditions under which specific behavior patterns may or may not occur.