טכניון מכון טכנולוגי לישראל
הטכניון מכון טכנולוגי לישראל - בית הספר ללימודי מוסמכים  
M.Sc Thesis
M.Sc StudentRetzer Matan
SubjectThe Loss-Contrast Effect as an Attentional Phenomenon
DepartmentDepartment of Industrial Engineering and Management
Supervisor Professor Eldad Yechiam
Full Thesis textFull thesis text - English Version


Abstract

The loss-contrast effect is an anomaly in choice behavior literature. The basic effect is that when a minor loss is added to a gamble it improves the attractiveness of the gamble. This effect is inconsistent with expected utility theory assumption of dominance and with prospect theory’s loss aversion assumption. Under Slovic et al.’s (2002) account the emotional contrast effect is the result of the ease of making affective inferences based on value, which is strengthened when a gain is contrasted with a loss. This notion has resulted in a new approach to the study of decision under risk, culminating with the idea of the affect heuristic, the idea that people rely on the valence of their feelings when making decisions. However, there have been very few studies that examined the original loss-contrast effect. The current study aims to examine the processes leading to this anomaly of behavior. In particular, in two experiments we evaluate three potential contributors to the loss-contrast effect: Affective reactions, attentional processes and the “too good to be true” effect.  In the first experiment, we examined the relation between the loss-contrast effect and participant’s response time. In the second experiment, we tested the “too good to be true” explanation by examining a condition where the loss is part of a safe option. The results are more in line with the attentional explanation which indicates that the loss-contrast effect is a product of the increased task elaboration and scrutiny with losses.