Risk and distributional inequality

Abstract

Tested a distributional model of risk using positive lotteries in 6 experiments with 580 undergraduates. Exps I and II investigated Ss' preferences for lotteries; Exps 3-6 investigated judgments of riskiness. In all experiments, Ss were presented with a target set of stimulus lotteries in all possible pairs. Overall data support the distributional model of risk for judgments of preference and of riskiness, demonstrating the usefulness of Lorenz curves in capturing the salient psychological features of risk and revealing, as hypothesized, that people's judgments of positive risks are functionally similar to judgments of distributional inequality. It is suggested that although the distributional model must be supplemented to handle features of the risk domain that are absent in welfare economics, it is preferable to other models of decision making under risk because it can express in a psychologically acceptable way many significant features of people's processing of and preference for risks. (38 ref) (PsycINFO Database Record (c) 2006 APA, all rights reserved). © 1984 American Psychological Association.