Object valence as a moderator of the framing effect on risk preference

This paper tests an extension of prospect theory by comparing individuals' risk preferences for desirable and undesirable decision objects. Results show that decision objects' valence significantly moderated the relationship between frame of reference and risk preferences: Individuals were riskaverse when faced with value-increasing contingencies and risk-seeking when faced with valuedecreasing contingencies. Further, qualitative data suggest that prospect theory's generalizability is limited in multi-goal problems and under conditions where probabilities can be actively managed. These extensions clarify the applications of prospect theory in more contextually embedded decision making environments.