Prospect theory in decision-making processes: the analysis using a Single Case Study

Abstract

Here we compared the prospect theory developed by D.Kahneman and A.Tversky with the utility theory by J.von Neumann and O.Morgenstern. We also characterized the heuristics, which are considered to be the causes of systematic errors by the prospect theory. Since individual differences in decision-making are not addressed by the prospect theory, we applied single case study design. This allowed us to go beyond statistical limitations and discover features of decision-making process.
The Melbourne decision making questionnaire was applied. Cognitive biases were identified based on the framing effect. The components of the intellectual and personality potential were examined with a set of methods chosen according to T. Kornilova. The decision-making style was investigated with the General Decision-Making Style (GDMS) questionnaire.
Deviations during decision-making process were discovered. These deviations did not relate to heuristics, rather they were determined by the rational decision-making style within its cognitive (1) and regulatory (2) functions. The first function is based on the analytical system of reasoning, which is manifested through the interaction of cognitive systems 1 and 2 with the latter being dominant. The role of the system 2 is to block cognitive biases and contribute to the goal achievement. The second function is related to the components of the intellectual and personality potential: rationality, intolerance to uncertainty and emotional intelligence. Regarding our study case, neither the utility theory, nor prospect theory covered it fully. However, the prospect theory explained the patterns and helped to define the directions for future studies of the role of personality in decision-making.