Certainty effect

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title: "Certainty effect" type: doc version: 1 created: 2026-02-28 author: "Wikipedia contributors" status: active scope: public tags: ["risk", "cognitive-biases", "prospect-theory"] description: "Psychological effect" topic_path: "general/risk" source: "https://en.wikipedia.org/wiki/Certainty_effect" license: "CC BY-SA 4.0" wikipedia_page_id: 0 wikipedia_revision_id: 0

::summary Psychological effect ::

Main article: Prospect theory

The certainty effect is the psychological effect resulting from the reduction of probability from certain to probable . It is an idea introduced in prospect theory.

Normally a reduction in the probability of winning a reward (e.g., a reduction from 80% to 20% in the chance of winning a reward) creates a psychological effect such as displeasure to individuals, which leads to the perception of loss from the original probability thus favoring a risk-averse decision. However, the same reduction results in a larger psychological effect when it is done from certainty than from uncertainty.

Example

illustrated the certainty effect by the following examples.

First, consider this example:

Which of the following options do you prefer?

• A. a sure gain of $30
• B. 80% chance to win $45 and 20% chance to win nothing

In this case, 78% of participants chose option A while only 22% chose option B. This demonstrates the typical risk-aversion phenomenon in prospect theory and framing effect because the expected value of option B ($45x0.8=$36) exceeds that of A by 20%.

Now, consider this problem:

Which of the following options do you prefer?

• C. 25% chance to win $30 and 75% chance to win nothing
• D. 20% chance to win $45 and 80% chance to win nothing

In this case, 42% of participants chose option C while 58% chose option D.

As before, the expected value of the first option ($30x0.25=$7.50) was 20% lower than that of option D ($45x0.2=9) however, when neither option was certain, risk-taking increased.

Bibliography

Papers

General references

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