A new study co-authored Dr Kai Ruggeri and Dr Tomas Folke, from the Centre for Business Research, replicates influential Prospect Theory that describes how people make choices when faced with risky decisions.
In recent years, the popularity of behavioural science has been on the rise. This is in large part due to governments and businesses around the world recognising the potential for behavioural insights to improve many processes and outcomes that depend heavily on our choice as individuals. At the same time, replicability concerns in psychology, and behavioural sciences in general, gave rise to large-scale replication efforts investigating many conclusions based on well-established theories.
A new paper titled “Replicating patterns of prospect theory for decision under risk“ published in Nature Human Behaviour (one of the highest impact journals in behavioural science) tested the replicability of findings from one of the most cited and influential papers in this field: Kahneman and Tversky’s 1979 Prospect Theory. Prospect Theory describes how people make choices when faced with risky decisions and how those choices are not always consistent with what we consider “rational”. This work was so influential and impactful that it earned Daniel Kahneman the Nobel Prize in Economics in 2002, and has only grown in influence since.
The replication study built on an extensive, cross-national sample – overall, 4,000 people in 19 countries were recruited, and the study material covered 13 languages. Led by Dr Kai Ruggeri and Dr Tomas Folke, both affiliates of the Centre for Business Research in Cambridge Judge Business School, researchers found that response patterns for decision-making under risk identified in the original paper more than 40 years ago, although somewhat smaller in size, still hold true today across multiple countries. For instance, they found people take more risks to avoid losses and fewer risks when faced with a choice framed as a potential gain.
According to Dr Ruggeri, “the most exciting thing about these findings is not only that these patterns have broadly replicated, it seems they are also generalisable around the world – which is one of the biggest concerns facing the behavioural sciences. This confirmation has tremendous meaning both to our discipline as well as to all sorts of applications of behavioural science.”
What is further unique about this study is that students and early career researchers from all 19 countries played a crucial role in the effort. The project was part of an internship in the summer of 2019 organised by the Junior Researcher Programme, which aims to provide research opportunities to students of psychology and similar disciplines. For this research, the Centre for Business Research and Corpus Christi College hosted the team of nearly 30 in Cambridge, as they compiled data, analysed, and submitted their findings for publication.