Welcome to Francis Academic Press

Academic Journal of Humanities & Social Sciences, 2022, 5(2); doi: 10.25236/AJHSS.2022.050220.

Re-examination of reflection effect under Bayesian decision model

Author(s)

Honggen Chen

Corresponding Author:
Honggen Chen
Affiliation(s)

Department of Psychology, Tianjin Normal University, Tianjin, 300387, China

Abstract

Individuals use heuristics to make decisions or solve problems when faced with complex situations, and currently known heuristics can only explain limited human decision-making behaviors. Anchoring strategy is a decision-making strategy proposed by Kahneman and Tversky. It is a strategy used by decision-makers when the decision-making target is beyond the decision-maker's judgment distance. It can be used to explain the reflection effect and loss aversion effect. On the basis of this hypothesis, this study attempts to further test this hypothesis with a Bayesian model. In order to examine whether people use anchoring strategies in reflex effect and loss aversion situations, this study, based on Bayesian decision model, treats anchoring strategies that follow the principle of mean reversion as the world state S related to the decision maker's action A , in the case of excluding the conditional probability of this state, observe whether the reflex effect and loss aversion effect are still contrary to the expected utility under the rational person hypothesis, so as to test whether people use the anchoring strategy. For this reason, in Experiment 1, we use rationality and profit and loss scenarios (loss/gain) as independent variables of the study to test that the subjective probability of the participants is different from the objective probability. The results show that the main effect of rationality is significant, the main effect of profit and loss situation is significant, and there is a significant interaction between the two. In experiment 2, we re-examined the reflection effect using a Bayesian model. By introducing the calculation method of subjective probability, the research results confirm that mean reversion as an explanation for the reflection effect has utility.

Keywords

Anchoring strategy; Bayesian model; Reflect effect; Decision-making; Mean reversion

Cite This Paper

Honggen Chen. Re-examination of reflection effect under Bayesian decision model. Academic Journal of Humanities & Social Sciences (2022) Vol. 5, Issue 2: 142-147. https://doi.org/10.25236/AJHSS.2022.050220.

References

[1] Chen Fan. (2013). A comparative study of risk decision-making under the descriptive and empirical paradigms. (Doctoral dissertation, Fudan University).

[2] Xiong Liwen. (2005). Bayesian Decision Theory and Inductive Logic. Journal of Beijing Normal University: Social Sciences Edition (02), 109-114.

[3] Zhang Changwen, & Xu Guo. (2003). Economic Thinking of Expected Utility Theory. Journal of Shandong Normal University: Natural Science Edition, 018(001), 102-103.

[4] Li Haijun, Xu Fuming, Xiang Peng, Kong Shixiao, & Meng Zhenzhen. (2013). Dependence Based on Expectation Theory. Advances in Psychological Science, 21(2), 317-325.

[5] Amos Tversky, & Daniel Kahneman. (1979). Prospect theory: an analysis of decision under risk. econometrica, 47(2), 263-291.

[6] Gigerenzer, G. , Todd, P. M. , & Group, A. (2000). Simple heuristics that make us smart. OUP Catalogue, 23(5), 727-41; discussion 742-80.

[7] Sun, Y. T. , & Hong, G. U. (2009). Review on the evolutionary paradigm of decision making. Journal of Tangshan Teachers College.

[8] Xiang Ling, & Zhang Qinglin. (2006). Supporting Theory of Subjective Probabilistic Judgments. Advances in Psychological Science (05), 51-58.

[9] Li Zhanglu. (2013). On the basic probability fallacy in subjective probability judgment. Theory and Modernization (01), 12-17.

[10] Li Xiaoping, Ge Minggui, Cui Lizhong, Sang Qingsong, & Xuan Bin. (2009). Re-exploration of the occurrence conditions and mechanism of the effect of profit and loss in decision-making: a kind of perspective and some discussions on the perspective itself. Acta Psychologica Sinica( 3), 196-207.

[11] He Guibing, Li Shu, & Liang Zhuyuan. (2018). Small to large: Behavioral decision-making boosts social development. Acta Psychologica Sinica, 50(8).

[12] Jones, C. S. . (2015). Nonlinear mean reversion in the short-term interest rate. The Review of Financial Studies(3), 3.