MAPPING HEURISTICS AND PROSPECT THEORY: A study of theory integration

Attempts to model boundedly rational risky choice have generated two influential but separate lines of research: cumulative prospect theory (CPT) and heuristics. Each approach has pursued its own research questions, and both have made important contributions to the study of decision making under risk, but these contributions have hardly been connected to each other. This chapter illustrates how the two approaches can be brought together. Specifically, it shows how the choices produced by heuristics of risky choice are reflected in CPT’s value and weighting functions, and how CPT can be used to reveal and measure how the properties of choices produced by some heuristics are contingent on the structure of the environment. Finally, it discusses how empirical choice phenomena (e.g., the fourfold pattern of risk attitudes) that have critically shaped key assumptions in CPT might result from heuristic information processing, and how insights into the boundary conditions of heuristic information processing can in turn suggest moderating conditions for those choice phenomena. These analyses highlight the value of elaborating the relationships between theories in order to pursue theory integration.