The function of the reference point in individual and group risk decision making

Abstract

The function of the reference point was studied with individuals and groups deciding among bets. Prospect Theory (Kahneman & Tversky, 1979) asserts that a psychological reference point is influenced by recent changes in one's current asset. Based on this notion, a person who has experienced losses recently was predicted to make riskier choices than a person who has not, but no systematic risk preference was expected for a person experiencing recent gains. Subjects' individual choices were generally consistent with these notions, although one of the key assumptions of the theory was violated. Assuming that a loss person will have a greater influence over a group decision, a group containing a loss member was anticipated to make riskier decisions than a group that does not. The results of three-person group decisions did not show this pattern; instead, the idiosyncratic risky preference of a loss member was found to be overridden by majority influence from nonloss members. Discussion focused on the implications of the loss member's idiosyncratic choice and of the robustness of social/normative factors relative to task/ individual factors.