AUTHOR=Cruz Rambaud Salvador , Sánchez Pérez Ana M. TITLE=The Magnitude and “Peanuts” Effects: Searching Implications JOURNAL=Frontiers in Applied Mathematics and Statistics VOLUME=4 YEAR=2018 URL=https://www.frontiersin.org/journals/applied-mathematics-and-statistics/articles/10.3389/fams.2018.00036 DOI=10.3389/fams.2018.00036 ISSN=2297-4687 ABSTRACT=

The framework of this paper is the field of decision-making processes in which people face the choice between probabilistic and dated rewards. Traditionally, the preferences for probabilistic outcomes have been analyzed by the Expected Utility (EU) model whilst the preferences for dated rewards have been studied by the Discounted Utility (DU) model. Nevertheless, recent empirical findings have revealed the existence of several anomalies or paradoxes in both contexts. Specifically, EU and DU models exhibit an anomaly affecting the amount of the reward, viz the “peanuts” and the magnitude effects, respectively, which seem to go in opposite directions. The aim of this paper is to analyze both effects jointly in a wide setting involving choices subject to risk and over a period of time, and thereby identify and consider the implications of one anomaly on the other.