INVESTIGATING THE LEDDO, JAYANTI AND DUAN (2019) REVISED PROSPECT THEORY VALUE FUNCTION WITH PAKISTANI STUDENTS

Prospect Theory (Kahneman and Tversky, 1979) is a highly influential theory that predicts decision making when people are confronted with choices involving gains or losses with different degrees of uncertainty. Prospect Theory argues that people are generally risk averse when it comes to seeking gains and risk seeking when it comes to avoiding losses. Leddo et al. (2019) noted that the original formulation of Prospect Theory did not take into account people’s goals. They argued that people would be willing to take risks to achieve goals but become more risk averse once those goals are achieved, and they would become risk averse when confronted with losses in order to avoid a highly negative outcome but become more risk seeking to negate the negative outcome once that outcome occurred. Leddo et al.’s research confirmed this hypothesis, leading to a revision of Prospect Theory’s value function. The present research investigates whether the same revised value function can predict decisions made by people in other cultures. Accordingly, the present paper investigates whether the Leddo et al. (2019) findings will hold up with people from Pakistan, a poor country with a capitalistic economy. In the present study 80 adult professionals were given scenarios involving business decisions involving gains or losses above or below defined aspiration and avoidance levels (four scenarios in total with 20 participants per scenario). Results showed that participants demonstrated more risk-seeking behaviors for decisions involving losses than those involving gains, consistent with the original Kahneman and Tversky (1979) framework and inconsistent with the revised Leddo et al. (2019) framework but demonstrated more risk-seeking behaviors for decisions involving outcomes below the avoidance and aspiration levels than for decisions involving outcomes above the avoidance and aspiration levels, consistent with the revised Leddo et al. (2019) framework.