A Pedagogical Note on Risk Framing

John J. Hatem, Michael M. Barth, Bill Zang

Research output: Contribution to journalArticlepeer-review

Abstract

This article presents several classroom games that help illustrate the effect of risk framing on choices under uncertainty. These games are presented in the context of Kahneman and Tversky's prospect theory that is an alternative to the traditional expected utility theory. Expected utility theory is a prescriptive model of decision making that explains how people should react to risk, while prospect theory is a descriptive model that explains how people actually do react to risk. These classroom games can be used in introductory risk management courses, insurance courses, and financial risk management courses to help students to understand the effect of context on choices made under uncertainty. Although results from actual classroom experiments are included, these results are not meant to be indicative of normal results but are rather illustrative of the type of results that may arise when alternative framing contexts are used.
Original languageAmerican English
Pages (from-to)151-164
Number of pages14
JournalRisk Management and Insurance Review
Volume7
Issue number2
DOIs
StatePublished - Sep 2004

Keywords

  • Pedagogical note
  • Risk framing

DC Disciplines

  • Finance and Financial Management

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