Prospect theory is a central theory in the decision sciences. A recent replication helps us think about its accomplishments and role in the decision sciences.

Prospect theory was first proposed in 1979. However, in 2020 research was still being conducted to replicate the original results that prospect theory aimed to describe (Ruggeri et al., 2020). The authors of this replication concluded that their study provided “compelling evidence for continuing to consider prospect theory as a viable explanation of individual behavior, and therefore valuable for informing public policy around the world, in areas from financial decision-making to population well-being”.

But not everyone sees prospect theory as the pinnacle of theorizing in the decision sciences and have argued that “the successful replication of Kahneman and Tversky’s original results has little bearing on the status of Prospect Theory” (Kellen, 2020). More generally, the decision sciences have seen increasing critique of neo-bernoullian theories that rely on mathematical formulations of utility and probability, suggesting that these abstract concepts are often empirically unreliable and have little predictive power for real-world decision making (Friedman, Isaac, James, & Sunder (2014).

Questions on the texts

Read the introduction of Ruggeri et al. (2020) to obtain an overview of prospect theory and its historical role in the decision sciences as well as the comment by Kellen (2020) on Ruggeri et al.’s work (core reading). Try to answer the following questions:

1. What historical role did prospect theory play in psychology and related disciplines?
2. What are the motivations for replication provided by Ruggeri et al. (2020)?
3. Why does Kellen (2020) suggest that there is limited value in Ruggeri et al.’s replication?

Phlogiston theory attempted to explain combustion by postulating the existence of a fire-like element called phlogiston that is contained within flammable bodies and released during combustion. The discovery of oxygen eventually led to a rejection of the theory (and the birth of modern chemistry). Some researchers have predicted that theories like prospect theory will suffer a similar destiny because the postulated curves are the “phlogiston” of the decision sciences (Friedman, Isaac, James, & Sunder, 2014).
(CC BY-SA 3.0; Dancing Flames of burning charcoal in the dark)

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References

Ruggeri, K., Alí, S., Berge, M. L., Bertoldo, G., Bjørndal, L. D., Cortijos-Bernabeu, A., Davison, C., Demić, E., Esteban-Serna, C., Friedemann, M., Gibson, S. P., Jarke, H., Karakasheva, R., Khorrami, P. R., Kveder, J., Andersen, T. L., Lofthus, I. S., McGill, L., Nieto, A. E., … Folke, T. (2020). Replicating patterns of prospect theory for decision under risk. Nature Human Behaviour, 4(6), 622–633. http://doi.org/10.1038/s41562-020-0886-x

Kellen, D. (2020, June 23). The limited value of replicating classic patterns of prospect theory. Dialogues. Behavioural and Social Sciences at Nature Research. https://go.nature.com/2YqwWXR

Friedman, D., Isaac, M. R., James, D., & Sunder, S. (2014). Risky curves: On the empirical failure of expected utility. Routledge. https://doi.org/10.4324/9781315819891

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