Choosing the sure gain and the sure loss: uncertainty avoidance and the reflection effect

• Published in: The Journal of consumer marketing Vol. 31; no. 5; pp. 351 - 359
• Main Authors: Chatterjee, Subimal, Atav, Gizem, Min, Junhong, Taylor, David
• Format: Journal Article
• Language: English
• Published: Santa Barbara Emerald Group Publishing Limited 11.08.2014
• Subjects: Avoidance behavior; Between-subjects design; Decision making; Market research/consumer behaviour; Marketing; Preferences; Probability; Studies; Theory; Risky choice; Prospect Theory; Uncertainty avoidance; Reflection effect
• DOI: 10.1108/JCM-04-2014-0949
• ISSN: 0736-3761

Purpose – The paper aims to investigate the role of uncertainty avoidance (UA) as a moderator of Prospect Theory’s reflection effect (i.e. the simultaneous choice of a sure gain and a risky loss). We expect that higher-UA consumers, seeking certainty, will shun risk across both gains and losses such that their choices will be inconsistent with the reflection effect. Design/methodology/approach – We report three studies in which participants choose between risk and certainty. We use the stimuli from the original Prospect Theory paper, measure UA using an individual-level scale and conduct controlled experimental (laboratory) studies. Findings – We show that, compared to lower-UA consumers, higher-UA consumers demonstrate the reflection effect less frequently in a variety of settings (small/large stakes and within/between subjects comparisons). Mediation tests reveal that higher-UA consumers anchor on the sure loss and stay with their choice because they prefer the certainty of the sure (smaller) loss to the possibility of a possible (larger) loss (a dual-mediation mechanism). Research limitations/implications – The results have important implications for marketing practice. They show that quantifying uncertainty into a probability number is not enough to eliminate the uncertainty of the situation, and that UA is likely serve as a boundary condition to many of the traditional heuristics of judgment and decision-making. Originality/value – This is the first paper to demonstrate that UA can moderate the reflection effect (using the stimuli in the original Prospect Theory paper). Therefore, it sets an agenda for future researchers who may want to use these findings to calibrate price/uncertainty tradeoffs within higher-UA segments.