Annals of Health Law
STRATEGY AGAINST SMOKING
a. Peanuts Effect
Risk aversion with regard to gains is probably one of the most robust
generalizations in decision-making under uncertainty. 88 However, there
appears to be a strong correlation between decreasing risk aversion and
decreasing monetary amounts that are at stake, 89 i.e., people might be
willing to risk one dollar for a ten percent chance of gaining ten dollars
instead of keeping the one dollar while they would decide differently in
case of $100 and a ten percent chance of gaining $1,000.90 This so-called
“peanuts effect” has been demonstrated in several studies. 91 The
phenomenon indicates that small rewards become significantly less
attractive at a certain point and are attributed with a negligible value.
b. Overweighting of Small Probabilities
Numerous empirical studies have demonstrated that decision makers
commonly do not weigh utilities linearly by corresponding probabilities,
but instead overestimate small and underestimate large probabilities. 92
88. See, e.g., Daniel Kahneman & Amos Tversky, Prospect Theory: An Analysis of
Decision Under Risk, 47 ECONOMETRICA 263 passim (1979).
89. Drazen Prelec & George Loewenstein, Decision Making Over Time and Under
Uncertainty: A Common Approach, 37 MGMT. SCI. 770 passim (1991). See Bethany J.
Weber & Gretchen B. Chapman, Playing for Peanuts: Why is Risk Seeking More Common
For Low-Stakes Gambles?, 97 ORGANIZATIONAL BEHAV. & HUMAN DECISION PROCESSES 31
passim (2005), for potential explanations of this correlation.
90. See Harry Markowitz, The Utility of Wealth, 60 J. POL. ECON. 151, 153-55 (1952).
91. Wanjiang Du, Leonard Green & Joel Myerson, Cross-Cultural Comparisons of
Discounting Delayed and Probabilistic Rewards, 52 PSYCHOL. REC. 479 passim (2002);
Leonard Green, Joel Myerson & Pawel Ostaszewski, Amount of Reward Has Opposite
Effects on the Discounting of Delayed and Probabilistic Outcomes, 25 J. EXPERIMENTAL
PSYCHOL. 418 passim (1999); Daniel D. Holt, Leonard Green & Joel Myerson, Is
Discounting Impulsive? Evidence from Temporal and Probability Discounting in Gambling
and Non-Gambling College Students, 64 BEHAV. PROCESSES 355 passim (2003); Joel
Myerson et al., Discounting Delayed and Probabilistic Rewards: Processes and Traits, 24 J.
ECON. PSYCHOL. 619 passim (2003).
92. Amos Tversky & Craig R. Fox, Weighing Risk and Uncertainty, 102 PSYCHOL. REV.
269 passim (1995); George Wu & Richard Gonzalez, Curvature of the Probability
Weighting Function, 42 MGMT. SCI. 1676 passim (1996); Maurice Allais, Le Comportement
de l’Homme Rationnel Devant le Risque: Critique des Postulats et Axiomes de l’Ecole
Americaine, 21 ECONOMETRICA 503, 536 (1953); Pamela K. Lattimore, Joanna R. Baker &
A. Dryden Witte, The Influence of Probability on Risky Choice: A Parametric Examination,
17 J. ECON. BEH. AND ORG. 377 passim (1992); Kahneman & Tversky, supra note 88, at 263
passim; Craig Glaser, Julia Trommershäuser, Pascal Mamassian et al., Comparison of the
Distortion of Probability Information in Decision Under Risk and an Equivalent Visual
Task, 23 PSYCHOL. SCI. 419 passim (2012); Han Bleichrodt, Probability Weighting in Choice
under Risk: An Empirical Test, 23 J. RISK AND UNCERTAINTY 185 passim (2001); Rong Chen
& Jianmin Jia, Consumer Choices Under Small Probabilities: Overweighting or
Underweighting?, 16 MARKETING LETTERS 5 passim (2005).