Organizational Behavior and Human Decision Processes 97 (2005) 31–46

www.elsevier.com/locate/obhdp

Playing for peanuts: Why is risk seeking more common

for low-stakes gambles? 夽
Bethany J. Weber ¤, Gretchen B. Chapman
Psychology Department, Rutgers University, 152 Frelinghuysen Road, Piscataway, NJ 08854-8020, USA

Received 19 February 2003

Abstract

Previous research has found that decision makers are more risk seeking for small-stakes gambles than for large-stakes gambles. This
“peanuts eVect” is not easily explained by Prospect Theory. Two experiments examined the range of circumstances in which peanuts
eVects occur and tested the hypothesis that anticipated disappointment or anticipated regret explains the peanuts eVect. The results
suggest that the peanuts eVect is related to disappointment, but do not support a connection between the peanuts eVect and regret.
 2005 Elsevier Inc. All rights reserved.

Keywords: Risk; Probability; Outcome magnitude; Magnitude eVect; Disappointment; Regret; Peanuts eVect; Preference reversals

Introduction
Generally speaking, decision-makers prefer not to
take chances. Given the choice between playing a gamble
and receiving the expected value of the gamble, most
decision-makers choose the latter. This risk-aversion is a
very common and robust phenomenon; Kahnman and
Tversky once called the tendency to be risk-averse “per-
haps the best known generalization regarding risky
choices” (Kahneman & Tversky, 1979).
There are, however, exceptions to this general rule.
The tendency of decision-makers to be risk-averse is
widespread, but applies only when the outcomes con-
cerned are gains. When faced with a potential loss, deci-
sion-makers tend to be risk seeking—that is, given the
choice between a possibility of loss and a certain loss
with the same expected value, they prefer the risky
option (Kahneman & Tversky, 1979; Markowitz, 1952).
Another example of risk-seeking behavior was Wrst
noted by Markowitz (1952). Consider a choice between
夽 the “peanuts eVect” (Prelec & Loewenstein, 1991)—deci-
This research was supported by an NSF graduate fellowship to the
Wrst author and NSF grant SES 99-75083 to the second author.
*
Fax: +1 732 445 2640.
E-mail address: bweber@eden.rutgers.edu (B.J. Weber).
$0.10 for certain and a 10% chance of winning $1. A risk-
averse decision-maker would choose the $0.10 for certain;
however, Markowitz believed, quite plausibly, that most
people presented with such a small-stakes choice would
prefer the gamble for $1. We can continue working our
way up the payout scale with similar choices: what about
a choice between $1 and a 10% chance of $10? Between
$10 and a 10% chance of $100? Markowitz proposed that
for each person there comes a point where his or her pref-
erences reverse. I might prefer to take a 10% chance of
$100 over $10 for sure, but given the same choice at a
higher monetary level, I would choose $100 for certain
over a 10% chance of $1000 (Markowitz, 1952).
Note that in both cases, I am being asked to accept 10
times the risk in exchange for 10 times the money, yet I
do not make the same choice in both circumstances. I am
more risk-averse for small gains than for large ones. (In
fact, in Markowitz’s example I am actually risk-seeking
for very small gains.) The eVect of decreasing risk aver-
sion with decreasing monetary amounts was christened
sion-makers are more willing to take risks when playing
for “peanuts.” (By this deWnition, it is not actually neces-
sary to become risk-seeking for very small gains, merely

0749-5978/$ - see front matter  2005 Elsevier Inc. All rights reserved.
doi:10.1016/j.obhdp.2005.03.001
32 B.J. Weber, G.B. Chapman / Organizational Behavior and Human Decision Processes 97 (2005) 31–46

to become less risk-averse for smaller payouts.) Marko-

witz also suggested that the peanuts eVect is reXected in
the domain of losses: that decision makers are more risk
seeking for small losses than for large losses.
Although Markowitz himself did not test his eVect
experimentally, a number of subsequent demonstrations
of the peanuts eVect exist. Green, Myerson, and Ostaszew-
ski (1999) determined subjects’ indiVerence points
through a series of choices, and found subjects to be less
risk-averse for small gain amounts than large ones.
Green, Myerson, and colleagues have also demonstrated
the peanuts eVect in other experiments. (Du, Green, &
Myerson, 2002; Holt, Green, & Myerson, 2003; Myerson,
Green, Hanson, Holt, & Estle, 2003). Rachlin, Brown, and
Cross (2000) found subjects to be less risk averse for small
amounts than for large amounts when making a graphi-
cal rating response, but did not Wnd the same pattern for
choice responses. Hershey and Schoemaker (1980) asked
subjects a series of risky choice questions and found a
peanuts eVect in the domain of gains and a reXected pea-
Fig. 1. Utility function proposed by Markowitz (1952).
nuts eVect in the domain of losses. Hogarth and Einhorn
(1990) asked subjects to chose between and rank options,
and found a peanuts eVect for both gains and losses, using
both hypothetical and real payouts. In a meta-analysis
of published Asian-disease framing eVects problems,
Kühberger, Schulte-Mecklenbeck, and Perner (1999)
found a peanuts eVect for a gains frame, but not for a
losses frame. Casey (1991, 1994) has demonstrated the
peanuts eVect for both bidding and choices.
The peanuts eVect can potentially be explained via the
utility function. Markowitz explained the peanuts eVect by
postulating an inXected slope for the utility function of
money. In gains, he proposed the utility function is convex
for small values and concave for large values. The inXec-
tion point of the function represents the magnitude at
which the decision-maker switches from risk-seeking to
risk-averse behavior. He proposed that in losses the utility
function was concave for small losses and convex for large
ones. Thus his proposed utility function contains three
inXection points: one at the origin and two more represent-
ing the monetary points at which behavior switches from
being risk seeking to risk averse or vice versa (see Fig. 1). Fig. 2. Utility function proposed by Kahneman and Tversky (1979).
Under Prospect Theory it is now generally accepted
that the utility function for gains is everywhere concave amounts increase. Thus, initially it seems that the pea-
and for losses everywhere convex (Kahneman & Tver- nuts eVect is not inconsistent with Prospect Theory.
sky, 1979; Tversky & Kahneman, 1992) (see Fig. 2). This
is inconsistent with Markowitz’s original postulate that The peanuts and magnitude eVects
decision-makers are actually risk-seeking for small
amounts of money, which requires a convex utility func- Examination of a similar bias in the domain of inter-
tion. However, it is not inconsistent with the more com- temporal choice casts some doubt on the ability of Pros-
monly used deWnition of the peanuts eVect suggested by pect Theory to explain the peanuts eVect. The magnitude
the previous experimental data: that decision-makers are of a payout inXuences time preferences as well as risk
less risk averse for small gain amounts than large ones. preferences. Time preferences reXect preferences for the
This behavior would be consistent with a concave utility timing of a delayed outcome and can be quantiWed as the
function that is almost linear (approaching risk neutral- percentage increase in value needed to oVset a given
ity) near the origin but gets more curved as payout delay. When given the choice between $10 now and $20
 B.J. Weber, G.B. Chapman / Organizational Behavior and Human Decision Processes 97 (2005) 31–46
in 1 year, for example, many decision-makers may prefer
to receive $10 now, indicating that more than a doubling
of value would be needed to compensate for the 1-year
delay. However, given a choice between $100 now and
$200 in 1 year, the delayed $200 becomes the more pre-
ferred option, now indicating that less than a doubling
of value is needed to compensate for the 1-year delay.
Thus, decision makers tend to have a more positive time
preference for small magnitude outcomes than for large
magnitudes (e.g., Chapman, 1996; Chapman & Winquist,
1998; Thaler, 1981).
The magnitude eVect is similar to the peanuts eVect in
all respects but one: the two eVects run in opposite direc-
tions if risk seeking corresponds to greater willingness to
wait for an outcome, as is usually assumed. This poses a
problem for attempts to develop a common explanation
for eVects of risk and delay, something that has been
proposed by numerous researchers (e.g., Keren & Roe-
lofsma, 1995; Prelec & Loewenstein, 1991; Rachlin,
Logue, Gibbon, & Frankel, 1986; Rachlin, Raineri, &
Cross, 1991). Both Green, Myerson, and colleagues (Du
et al., 2002; Green et al., 1999; Holt et al., 2003; Myerson
et al., 2003) and Rachlin et al. (2000) have found the
magnitude eVect and peanuts eVect in the same experi-
ment and both noted the problems this entails for any
attempt to reduce the eVects of risk and delay to a com-
mon psychological mechanism. Prelec and Loewenstein
(1991) have noted this diYculty as well.
The existence of the magnitude eVect also poses a seri-
ous problem for a utility function explanation of the
peanuts eVect. The magnitude eVect requires a utility
function that increases in proportional sensitivity (Prelec
& Loewenstein, 1991). That is, the ratio between the util-
ities of two monetary values with constant ratio must
increase as the monetary values increase. In the example
above, decision-makers appear to view the ratio between
the utilities of $100 and $200 as psychologically larger
than that between the utilities of $10 and $20—thus they
are willing to wait a year for the former increase, but not
the latter. However, the peanuts eVect demands a utility
function that decreases in proportional sensitivity. The
ratio between the utilities of $100 and $200 must be psy-
chologically smaller than that between the utilities $10
and $20 to explain why subjects would be less willing to
take risks to obtain the former increase than the latter.
Neither the magnitude eVect nor the peanuts eVect is
in principle non-normative, since either could be
explained under Expected Utility Theory by the shape of
the utility function. Either can be explained under Pros-
pect Theory, also by the shape of the utility function.
However, they cannot both be explained by the shape of
the utility function, as the two eVects require utility func-
tions with opposing properties.
If the utility function cannot explain both the peanuts
and magnitude eVects, what can? The diVering directions
of the peanuts and magnitude eVect suggest that some
33
factor that applies only to risk (or only to time) is at
work. Prelec and Loewenstein (1991) suggest that the
explanation for the peanuts eVect may lie in the realm of
disappointment.
Regret and disappointment
When picking a 10% chance of $1 over $0.10 for sure,
one is inclined to think, “Who cares if I pick the gamble and
lose? I’m only passing up 10 cents!” Passing over a chance
to receive a dime is no big deal. However, giving up $1000
for sure, even in exchange for a 10% chance of $10,000, is
likely to give one pause. What happens if I choose the gam-
ble? It’s likely I’ll lose and be unhappy that I could have
had $1000 but wound up with nothing instead.
According to decision aVect theory (Mellers, Schwartz,
Ho, & Ritov, 1997), negative emotions resulting from
decision outcomes take two forms. Disappointment is the
emotion experienced when a diVerent state of the world
would have produced a better result. If I am oVered a 10%
chance of winning $10,000 and lose the gamble, I will be
disappointed that I didn’t win (Bell, 1985; Loomes & Sud-
gen, 1986). Regret is the emotion experienced when a
diVerent choice on the part of the decision-maker would
have produced a better result. Suppose I am asked to
choose between $1000 for sure and a 10% chance of
$10,000. I choose to take the 10% chance of $10,000 and
lose the gamble, ending up with nothing. Now I still feel
disappointed that I didn’t win, but I also feel regret over
choosing the gamble instead of $1000 for sure (Bell, 1982;
Loomes & Sudgen, 1982). In a nutshell, disappointment
means wishing things had turned out diVerently; regret
means wishing one had made a diVerent choice.
Disappointment theory deWnes disappointment as a
function of the diVerence between the actual outcome
and the expected value of the gamble (Bell, 1985; Loo-
mes & Sudgen, 1986); regret theory deWnes regret as a
function of the diVerence between the outcome of the
chosen option and the outcome of the foregone option
(Bell, 1982; Loomes & Sudgen, 1982). Therefore, both
theory and intuition imply that disappointment and
regret are smaller, and thus play a smaller role, in small-
stakes decisions than in large-stakes ones. No one is
likely to be disappointed when they gamble on a 10%
chance of $1 and lose, or regret not choosing to accept a
certain $0.10 instead. Because the expected values of
both gambles are very small, when I lose the gamble and
receive nothing, the resulting regret or disappointment is
very small as well. Therefore, disappointment and regret
may not be major factors in these small-outcome gam-
bles. Decision makers can aVord to take risks when play-
ing for peanuts, as they know they will not feel very
much regret or disappointment about the outcome. In
contrast, for large-stakes gambles, where regret and dis-
appointment are much larger, the anticipated negative
aVect may drive them to be more risk-averse.
34 B.J. Weber, G.B. Chapman / Organizational Behavior and Human Decision Processes 97 (2005) 31–46
Thus, disappointment, regret, or some combination
could well explain the peanuts eVect. Generally, avoiding
disappointment or regret drives people to more risk-
averse decisions. If disappointment and regret play little
role in decisions with small outcomes, decision makers
will be more risk-seeking for these small outcomes than
when making decisions for larger outcomes which do
involve the possibility of signiWcant disappointment or
regret.
If disappointment is responsible for the peanuts eVect,
it could also explain why the magnitude and peanuts
eVect run in opposite directions. By deWnition, disappoint-
ment occurs when a diVerent state of the world would
have produced a better outcome. This can only occur if
there are multiple possible states of the world with
regards to the outcome in question—in other words, if the
outcome is risky. A certain outcome has no alternate pos-
sible states of the world and thus no potential for disap-
pointment. Because the magnitude eVect involves certain
outcomes, the choices that produce it are free of the possi-
bility of disappointment. A decision-maker whose utility
functions displays increasing proportional sensitivity
could then show both the magnitude eVect and the pea-
nuts eVect: the magnitude eVect produced by the underly-
ing utility function, and the peanuts eVect produced by
the diVerential levels of disappointment incurred by out-
comes of diVerent sizes. Although such a utility function
would by itself result in the opposite of the peanuts eVect,
instead the peanuts eVect occurs because of the inXuence
of disappointment the domain of risky choice.
The question of regret and the magnitude eVect is
more complicated. Regret is experienced when a decision
maker feels that a diVerent choice would have produced
a better outcome (Gilovich & Medvec, 1995), and this
could occur in both risky choice and intertemporal
choice. For example, a dieter may impulsively eat two
pieces of cheesecake, but regret the choice the next
morning when he steps on the scale. In fact, he may eat
the cheesecake even though he knows he will regret it
later because the present utility of the cheesecake out-
weighs the future utility of losing weight—and the future
disutility of the anticipated regret.
Notice what happens as anticipated future regret
increases. Eventually, the disutility of the regret associ-
ated with making an impulsive choice becomes large
enough that the discounted future regret outweighs the
appeal of the impulsive option. Thus, as anticipated
regret increases, the willingness to wait for a future out-
come should increase as well. This is precisely what
occurs in the magnitude eVect in intertemporal choice.
As the size of the outcome increases, and with it the
associated regret, decision-makers become less impulsive
and more willing to wait. Regret can therefore poten-
tially explain the diVering directions of the peanuts and
magnitude eVect, as any inXuence of anticipated regret
would drive the two eVects in diVerent directions.
One complication to a regret account of the peanuts
eVect is the issue of feedback. According to the original
Regret Theory, feeling regret requires knowing what the
outcome of the forgone choice would have been, allow-
ing easy comparison between the obtained and unob-
tained outcomes. However, experiments involving
choices between gambles usually tell the subject nothing
about the result of the gamble not chosen—including
studies that have demonstrated the peanuts eVect. If
there can be no regret without anticipated feedback then
regret cannot be the explanation for the peanuts eVect.
However, if regret depends on feedback it is not par-
ticularly useful for explaining real-world decision mak-
ing either. Although sometimes we learn the outcome of
foregone options, usually we will never know what
would have happened if we would married our high
school sweethearts (or failed to marry them), but it
seems unreasonable to suggest that we cannot regret our
choice if the outcome we did obtain was unfavorable.
Empirically, the evidence for regret in the absence of
feedback is mixed. Some studies suggest it does not
occur (e.g., Mellers, Schwartz, & Ritov, 1999) and others
have found that that it does (e.g., Bar-Hillel & Neter,
1996; Zeelenberg et al., 1998). Faced with mixed evidence
it seems reasonable to take the suggestion of Zeelenberg
(1999) and assume that regret is weaker but not absent
when decision-makers receive no feedback about the
unobtained outcome. If this is the case, regret could be
an explanation for the peanuts eVect.
Disappointment and regret are negative emotions
associated with decisions with outcomes that were less
than ideal. However, decisions can also have positive
outcomes and the emotions associated them can likewise
be positive. The disappointment one feels after losing a
gamble goes hand and hand with the elation one feels
after winning; regret over making a choice that resulted
in a poorer outcome turns into rejoicing when the choice
you made proves to be the optimal one.
It is possible that when making decisions, decision
makers seek to experience elation and rejoicing as well as
to avoid disappointment and regret. However, such
behavior cannot explain the peanuts eVect: like disap-
pointment and regret, elation, and rejoicing increase as
the size of the payout increases. The desire to experience
elation and rejoicing would therefore drive decisions in
the opposite direction of that seen in the peanuts eVect: as
the payouts increase, the potential for elation and rejoic-
ing increases and we would expect to see subjects become
more risk seeking for larger payouts, not more risk averse
as seen in the peanuts eVect. Therefore we concentrate on
disappointment and regret in the present studies.
Current studies
The purpose of the present experiments is twofold.
First, few studies have been conducted speciWcally to
 B.J. Weber, G.B. Chapman / Organizational Behavior and Human Decision Processes 97 (2005) 31–46
investigate the peanuts eVect since it was Wrst proposed
by Markowitz in 1952 (e.g., Du et al., 2002; Holt et al.,
2003; Hogarth & Einhorn, 1990; Green et al., 1999;
Myerson et al., 2003; Rachlin et al., 2000). To our knowl-
edge, no investigation of the peanuts eVect has extended
far beyond the observation that it exists, and factors that
moderate the peanuts eVect have not been examined in a
systematic fashion. Experiment 1 in the current paper
addresses this deWcit by examining when a peanuts eVect
is obtained and what factors inXuence its size and pres-
ence. This experiment provides an initial test of whether
the peanuts eVect can be explained by any utility func-
tion. It also examined what factors produce sizable pea-
nuts eVects so that appropriate stimuli could be chosen
for future experiments. Experiment 2 provided an addi-
tional test of whether the peanuts eVect can be explained
by the shape of the utility function and contrasted this
account with an alternative hypothesis that disappoint-
ment and/or regret are responsible for the peanuts eVect.
Experiment 1: Payouts and probabilities
The purpose of Experiment 1 was to explore the inXu-
ence of a variety of factors on the peanuts eVect, with an
eye towards Wnding values that would produce large
peanuts eVects for use in future experiments. Subjects
made choices between gamble pairs. Each gamble had
one positive and one zero outcome. The two gambles in
a choice pair had the same expected value, but one was
riskier than the other. Compared to the less risky gam-
ble, the riskier gamble had a higher positive outcome
and lower probability to obtain that outcome.
When considering possible peanuts eVect choice ques-
tions, it quickly became apparent that there are three
factors that can vary. One is the size of the magnitude
increase between the small-stakes gamble and the large-
stakes gamble. Would contrasting a pair of gambles
where the payout of the smaller, safer gamble was $10 vs.
a pair where the smaller, safer payout was $100 be a
large enough increase to show a strong peanuts eVect, or
should the larger pair of gambles have payouts in the
range of $1000 instead? Another factor was the magni-
tude of the probabilities used in the gambles. Markowitz
used choices between gambles and certain amounts in
his examples. Is certainty necessary to produce a strong
peanuts eVect, or can both options of the choice pairs be
gambles? Should the probabilities of the gambles be
small or large? The third factor was the ratio between
the probabilities of the non-zero payouts in the two
gambles. If the winning outcome in the smaller, safer
gamble occurred with 100% probability, how probable
should the outcome in the larger, riskier gamble be to
produce a large peanuts eVect? Should it be 80%, so that
choosing the gamble entails a small additional risk and
small additional reward, or 25%, so that choosing the
35
gamble means a large additional risk and a large addi-
tional reward? Because both gambles in a choice pair
have the same expected value, the ratio between the
probabilities corresponds to a complementary ratio
between the two non-zero payouts.
Thus, in Experiment 1 we examined how the percent-
age of subjects selecting the less risky of two gambles var-
ied with the magnitude of the non-zero outcomes, the
ratio between the probabilities to win in the two gambles,
and the size of the probabilities of the nonzero outcomes.
An eVect of the magnitude of the outcomes comprises a
peanuts eVect. If probability ratio or size interacts with
outcome magnitude, it would indicate that these factors
(probability ratio or size) moderate the peanuts eVect.
Besides being useful for providing future experiment
stimuli, Experiment 1 serves as a test of the ability of the
Prospect Theory value function (or any utility function)
to explain the peanuts eVect. A moderating eVect of
probability size would require that the utility function
vary with outcome probability if an explanation based
on the utility function is to be tenable. Such dependence
is not permitted in either Prospect Theory or normative
Expected Utility Theory, in which the utility function is
independent of the probability level.
Method
Participants
Two hundred and eleven undergraduates at Rutgers
University participated in the experiment. They were
oVered the opportunity to Wll out the questionnaire after
completing a Wnal exam for a lower-level psychology
class, in exchange for a $1 payment.
Design
Each subject was presented with the 12 questions
shown in Table 1. Each question was a binary choice
between a larger but riskier positive outcome and a
smaller but more probable positive outcome.
There was one between-subjects manipulation: the
ratio between the probabilities to win in the two gam-
bles. In each gamble pair, the less risky gamble had a
probability to win that was either 1.25 times, 2 times, or
4 times the probability to win in the more risky option.
Comparing the three levels of probability ratio allowed
us to evaluate how the ratio between the probabilities
inXuenced the size of the peanuts eVect.
There were two within-subject experimental manipu-
lations in Experiment 1: the magnitude of the payouts,
and the magnitude of the probabilities of the outcomes.
First, each gamble pair had one of four magnitude lev-
els: the nonzero outcome of the less risky gamble was
either $1, $10, $100, or $1000. The nonzero outcome of
the riskier gamble was either 1.25, 2, or 4 times the size of
the smaller outcome (depending on the probability
ratio), so that the expected value of the two gambles was
36 B.J. Weber, G.B. Chapman / Organizational Behavior and Human Decision Processes 97 (2005) 31–46

Table 1
Experiment 1 questions
Probability ratio Probability magnitude Outcome magnitude
$1 $10 $100 $1000
1.25 Low 8%, $1.25 8%, $12.50 8%, $125 8%, $1250
10%, $1 10%, $10 10%, $100 10%, $1000
Medium 40%, $1.25 40%, $12.50 40%, $125 40%, $1250
50%, $1 50%, $10 50%, $100 50%, $1000
High 80%, $1.25 80%, $12.50 80%, $125 80%, $1250
100%, $1 100%, $10 100%, $100 100%, $1000
2 Low 5%, $2 5%, $20 5%, $200 5%, $2000
10%, $1 10%, $10 10%, $100 10%, $1000
Medium 25%, $2 25%, $20 25%, $200 25%, $2000
50%, $1 50%, $10 50%, $100 50%, $1000
High 50%, $2 50%, $20 50%, $200 50%, $2000
100%, $1 100%, $10 100%, $100 100%, $1000
4 Low 5%, $4 5%, $40 5%, $400 5%, $4000
20%, $1 20%, $10 20%, $100 20%, $1000
Medium 12%, $4 12%, $40 12%, $400 12%, $4000
48%, $1 48%, $10 48%, $100 48%, $1000
High 25%, $4 25%, $40 25%, $400 25%, $4000
100%, $1 100%, $10 100%, $100 100%, $1000

equal. Comparing the four levels of payout magnitude Each question presented the participant with two gam-
aVords a demonstration of the peanuts eVect. bles. The participants were asked to circle the alternative
Second, the probabilities of the nonzero outcomes they preferred.
could be small, medium, or large. The value of the prob-
abilities at these three levels varied with level of the Results and discussion
probability ratio: they were chosen so that, at the largest
level of probability, the less risky gamble had a probabil- As shown in Table 2, participants displayed a signiW-
ity to win of 100%. Comparing the three levels of proba- cant peanuts eVect. A 4 (payout magnitude) £ 3 (proba-
bility magnitude indicates whether the peanuts eVect bility magnitude) £ 3 (probability ratio) mixed model
varies with the size of the probability, and in particular, logistic regression analysis used choice of the safer gam-
whether the peanuts eVect depends on one of the out- ble as the dependent variable. (Results are identical to
comes being certain. The 4 (outcome magnitude) £ 3 the results obtained if choice of the riskier gamble is
(probability magnitude) £ 3 (probability ratio) mixed- used.) It showed a signiWcant main eVect of payout mag-
factors design resulted in three questionnaire versions nitude (
2 (3, N D 211) D 91.65, p < .05), indicating that
with 12 questions in each (see Table 1). subjects were less likely to choose the riskier gamble as
payout magnitude increased. This result comprises the
Materials peanuts eVect. The interaction between payout magni-
Each participant was presented with a one-page ques- tude and probability magnitude was also signiWcant,
tionnaire that included 12 questions. Half of the subjects (
2 (6, N D 211) D 16.85, p < .05), indicating that the pea-
saw the 12 questions in one random order and half saw a nuts eVect was larger for larger probability magnitudes.
reverse of that random order to control for order eVects. In addition, the interaction between payout magnitude
Table 2
Percentage (n) of subjects choosing the risky option in Experiment 1
Probability ratio Probability magnitude Outcome magnitude
$1 $10 $100 $1000 DiVerence ($1 ¡ $1000)
1.25 Low 50% (28) 46% (26) 45% (25) 62% (35) ¡12%
Medium 36% (20) 30% (17) 25% (14) 48% (27) ¡12%
High 21% (12) 14% (8) 14% (8) 14% (8) 7%
2 Low 67% (70) 59% (62) 43% (45) 44% (46) 23%
Medium 59% (62) 44% (46) 23% (24) 16% (17) 43%
High 42% (44) 29% (30) 9% (9) 7% (7) 35%
4 Low 61% (30) 39% (19) 22% (11) 18% (9) 43%
Medium 63% (31) 31% (15) 10% (5) 10% (5) 53%
High 55% (27) 23% (11) 8% (4) 6% (3) 49%
 B.J. Weber, G.B. Chapman / Organizational Behavior and Human Decision Processes 97 (2005) 31–46 37

and probability ratio was signiWcant, (
2 (6,N D211) D
63.46, p <.05), indicating that the peanuts eVect was larger
for the larger probability ratios. These choice percentages
are reported numerically in Table 2 and graphically in
Fig. 3. The logistic regression analysis modeled the log
odds that a subject chose the risk-averse alternative
based on a linear combination of binary dummy vari-
ables comparing each level of the dependant variables to
a reference level. The coeYcients of the logistic regres-
sion are displayed in Table 3. Results are modeled such

Fig. 3. Percentage of subjects choosing the risky option in Experiment 1.

Table 3
Logistic regression coeYcients for the log odds of choosing the safer optiona
Factor Levels Regression coeYcient Lower 95% Upper 95%
conWdence conWdence
Payout magnitudeb $1 vs. $10 1.40 0.72 2.07
$1 vs. $100 2.62 1.60 3.65
$1 vs. $1000 2.93 1.67 4.20
Probability magnitudeb High vs. medium ¡0.34 ¡0.96 0.28
High vs. low ¡0.25 ¡0.89 0.38
Probability ratiob 4 vs. 2 0.53 ¡0.16 1.21
4 vs. 1.25 1.50 0.65 2.36
Payout magnitude ¤ probability magnitude $1 vs. $10 and high vs. medium ¡0.04 ¡1.03 0.96
$1 vs. $10 and high vs. low ¡0.48 ¡1.31 0.34
$1 vs. $100 and high vs. medium 0.09 ¡1.06 1.24
$1 vs. $100 and high vs. low ¡0.93 ¡2.10 0.24
$1 vs. $1000 and high vs. medium ¡0.27 ¡1.62 1.09
$1 vs. $1000 and high vs. low ¡0.99 ¡2.35 0.24
Payout magnitude ¤ probability ratio $1 vs. $10 and 4 vs. 2 ¡0.81 ¡1.61 ¡0.01
$1 vs. $10 and 4 vs. 1.25 ¡0.90 ¡1.98 0.17
$1 vs. $100 and 4 vs. 2 ¡0.59 ¡1.86 0.69
$1 vs. $100 and 4 vs. 1.25 ¡2.13 ¡3.41 ¡0.86
$1 vs. $1000 and 4 vs. 2 ¡0.62 ¡2.13 0.90
$1 vs. $1000 and 4 vs. 1.25 ¡2.44 ¡3.92 ¡0.97
a
Regression was performed on the log odds of choosing the safer option so that positive coeYcients for magnitude and its interactions would
represent a peanuts eVect. Regressing on the log odds of the riskier option reverses the sign of all coeYcients.
b
In a logistic regression, the coeYcients of a main eVect represent the eVect of that variable when the variables it interacts with are at their refer-
ence levels. For example, the coeYcients for magnitude represent the eVects of magnitude when the probability ratio D 4 and the probability
level D high, and so forth. The overall eVect of a variable can be found by adding the coeYcients for the main eVect and all the interactions the vari-
able participates in.
38 B.J. Weber, G.B. Chapman / Organizational Behavior and Human Decision Processes 97 (2005) 31–46
that positive coeYcients for outcome magnitude and its
interactions represent a peanuts eVect.
The signiWcant interaction between payout magni-
tude and probability ratio indicates that the size of the
peanuts eVect depends on the ratio between the proba-
bilities of the nonzero outcomes in the choice pair.
When the probability ratio is 1.25, the peanuts eVect is
non-existent—in fact, for some probability levels there
appears to be an reverse peanuts eVect, with subjects
giving less risk-averse responses for the $1000 payout
magnitude than for the smaller payouts. A logistic
regression analysis conducted on only the group of sub-
jects where probability ratio was 1.25 shows a main
eVect of payout magnitude, indicating that this reverse
peanuts eVect is signiWcant. (
2 (3, N D 56) D 11.11,
p < .05) When the larger probability is 2 or 4 times the
smaller, there is a noticeable peanuts eVect. Repeating
the logistic regression analysis without the group of
subjects where probability ratio was 1.25 still reveals a
signiWcant interaction between magnitude and proba-
bility ratio (
2 (3, N D 155) D 10.05, p < .05), indicating
that the peanuts eVect obtained when the probability
ratio is 4 is larger than that obtained for probability
ratio 2.
The signiWcant interaction between payout magni-
tude and probability magnitude indicates that the size
of the peanuts eVect increases with increasing
probability magnitude. The reverse peanuts eVect pres-
ent at the lower probability levels for the 1.25 probabil-
ity ratio disappears at the highest probability level. For
the 2 and 4 probability ratios, the peanuts eVect is
slightly smaller at the lowest probability level than at
the largest two levels. The logistic regression analysis
performed on only the 2 and 4 probability ratios indi-
cates that the outcome magnitude by probability mag-
nitude interaction is still signiWcant (
2 (6, N D 155)
D 14.97, p < .05).
The main eVect of probability magnitude was also sig-
niWcant, (
2 (2, N D 211) D 61.20, p < .05), indicating that
subjects were less inclined to choose the riskier outcome
at higher levels of probability. The tendency of decision-
makers to become more risk averse as probability levels
increase is called the Common Ratio EVect and has been
found in other studies (e.g., Kahneman & Tversky, 1979).
The main eVect of probability ratio was not signiWcant,
(
2 (2, N D 211) D 2.89, p > .05), indicating that the ratio
between the probabilities of the two outcomes had no
eVect on the risk preferences of the subjects.1
It is clear from the results of Experiment 1 that the
peanuts eVect is only evident when the ratio between the
probabilities—and hence the payouts—of the two
options is above a certain size. Subjects who saw the 1.25
1
The two-way interaction between probability ratio and probability
level and the three-way interaction are of no theoretical interest and
are not reported.
probability ratio were more risk averse at the $1 payout
level than those who saw the higher ratios. At the 1.25
ratio, there is only a small incentive for taking the
greater risk, and this incentive does not appear to be
enough to induce the subjects to gamble for peanuts.
Conversely, at the $1000 magnitude the subjects who
saw the 1.25 probability ratio were much less risk averse
than those who saw the higher ratios. Here, the compar-
atively small additional risk was apparently small
enough to be ignored in favor of the larger reward. Only
when making the riskier choice would mean forgoing a
certain $1000 (i.e., at the high probability magnitude)
were the 1.25 probability ratio subjects as risk averse as
those who saw higher ratios.
Our initial hypothesis was that the size of the peanuts
eVect would always increase as the ratio between the
high and low magnitude payouts increased. That is, we
had assumed that the peanuts eVect produced by a
1000-fold increase (as between the $1 and $1000 payout
magnitude levels) would be substantially larger than
that produced by a 100-fold increase. Surprisingly, this
did not turn out to be the case. As seen in Fig. 3, the
additional increase in risk aversion gained by going from
the $100 level to the $1000 level was not signiWcant. That
is, comparing the $100 and $1000 payout levels did not
reveal a peanuts eVect except in the 1.25 probability ratio
case, when a reverse peanuts was evident when compar-
ing the $100 and $1000 levels.
Evidently, the size of the peanuts eVect produced by a
10-fold increase depends on where in the scale the
increase occurs. The reasons behind this Wnding are not
entirely clear. One possibility is that the undergraduates
completing this survey tend to lump the $100 level and
$1000 level magnitudes together into one “more money
than I am likely to deal with on a regular basis” level.
However, the reverse peanuts eVect displayed when the
probability ratio was 1.25 does suggest that subjects
were distinguishing between the $100 and $1000 payout
magnitudes. It would be interesting to see whether the
$100 to $1000 change produced a peanuts eVect for
higher-income subjects who are more accustomed to
dealing with larger amounts of money.
These data do not suggest any special role of certainty
in the peanuts eVect—for the two probability ratios that
displayed a peanuts eVect, the eVect was no larger for the
highest level of probability (which involved a certain
option) than for the second highest level. The lowest
probability level, however, did show a somewhat smaller
peanuts eVect. This pattern is further examined in
Experiment 2.
What do these results say about the compatibility of
the peanuts eVect and Prospect Theory? As noted above,
the peanuts eVect itself is compatible with Prospect The-
ory so long as subjects are never actually risk seeking for
gains. The subjects in the current study, however,
showed a slight tendency to be risk seeking at the lower
 B.J. Weber, G.B. Chapman / Organizational Behavior and Human Decision Processes 97 (2005) 31–46
two levels of probability when the probability ratio was
2 or 4. This is not compatible with the utility function
postulated by Prospect Theory, which is concave
throughout in the domain of gains.
An interaction between probability ratio and payout
magnitude is not necessarily incompatible with Prospect
Theory. Larger probability ratios must also have larger
ratios between the magnitudes of the nonzero payout—
if the probability ratio is 4, the larger payout must be 4
times greater than the smaller payout for the expected
values of the two gambles to be equal. The greater diVer-
ence between the nonzero payouts magniWes the eVects
of utility function shape. For example, a concave utility
function that becomes more curved (i.e., increasing risk
aversion) as the payout increases would result in the pea-
nuts eVect. Because the risk aversion of the function
increases with magnitude, risk aversion is higher in the
choice between $100 and $400 (at the probability
ratio D 4 level) than in the choice between $100 and $200
(at the probability ratio D 2 level). However, the small
$1, $2, and $4 outcomes all show more or less the same
low level of risk aversion. Thus the peanuts eVect is
larger at the probability ratio D 4 level. However, the fact
that subjects showed a reverse peanuts eVect at the $1000
magnitude for the 1.25 probability ratio remains puz-
zling. This result is not strictly incompatible with Pros-
pect Theory—it could be explained by a utility function
in which risk aversion increases overall, but which has a
small region of decreasing risk aversion in the area of
$1250. However, such a utility function would be non-
parsimonious and post hoc. Consequently, the current
data suggest that perhaps the shape of the utility func-
tion is not the proper explanation for the peanuts eVect.
The interaction between payout magnitude and prob-
ability magnitude is entirely incompatible with Prospect
Theory. A utility function explanation of this result
would require a utility function that changes as the
probability of the outcome changes. Such a utility func-
tion is not permitted by Prospect Theory. Even in Cumu-
lative Prospect Theory (Tversky & Kahneman, 1992),
where utility and probability are not separable, the
shape of the utility function is not inXuenced by the
probability level. Therefore, this result suggests that the
shape of the utility function cannot be the correct expla-
nation for the peanuts eVect.
If the utility function cannot explain the peanuts
eVect, what can? Experiment 2 explores the possibility
that the cause of the peanuts eVect lies in the realm of
Decision AVect Theory (Mellers et al., 1997).
Experiment 2: Regret, disappointment, and loss
In Experiment 1, we established sets of gambles that
yielded a strong peanuts eVect. In Experiment 2, we used
this information to study the impact of disappointment
39
and regret on the peanuts eVect. Additionally, Experi-
ment 2 tested whether a reXected peanuts eVect occurred
in the domain of losses.
Consider opening a soft drink bottle with the adver-
tisement, “Find the winning game piece to win a new
car!” Opening the bottle, you Wnd “Sorry, you are not a
winner” written under the lid. Are you disappointed?
Probably not—the chances of winning such a contest are
small, and you weren’t really expecting to win. Were you
to Xip a coin for the same car and lose, the resulting feel-
ings could well be diVerent.
Why are you less disappointed about failing to win the
car in the bottle cap case than in the coin Xip case? Bell
(1985) postulated that experienced disappointment is
linked to the probability of the outcomes. The disappoint-
ment engendered by an unfavorable outcome is inversely
proportional to the probability of the outcome being unfa-
vorable. If the probability of winning is high, a loss is dis-
appointing; if the probability of winning is low, the loss is
expected and thus disappointment is low. Mellers et al.
(1997) showed subjects spinners representing gambles of
varying payout size and probability. After subjects
“played” each gamble on the computer, they were asked
to report their disappointment with the outcome. Subjects
were less disappointed by obtaining $0 instead of a gain
when the probability of obtaining the gain was small than
when it was large. This Wnding has been replicated in
numerous studies (e.g., Mellers et al., 1999; van Dlijk &
van der Pligt, 1997). Moreover, Mellers et al. (1999) found
that subjects are excellent at anticipating the disappoint-
ment they would actually feel following a losing gamble.
If decreasing levels of probability corresponds to
decreasing levels of disappointment, then probability
can be used as a disappointment manipulation. We
hypothesized that the peanuts eVect occurs because dis-
appointment is very small for decisions with small out-
comes. Without the inXuence of disappointment,
decision-makers are more risk-seeking for these deci-
sions. Therefore, if disappointment can be eliminated
from the large outcome gamble as well as the small out-
come gamble, the peanuts eVect should go away. If par-
ticipants show a reduced peanuts eVect at lower levels of
probability, where disappointment is also low, it sup-
ports the disappointment hypothesis. However, if the
peanuts eVect is not due to disappointment—for exam-
ple, if it is due to the shape of the utility function—then
it is unlikely to be inXuenced by probability level.
Regret is another emotion that may contribute to the
peanuts eVect. Regret depends upon making a choice. If
you are presented with only one option, and it turns out
badly, you may be disappointed, but you cannot regret a
decision you never made. Therefore, regret can be
manipulated by presenting participants either with a sin-
gle option to evaluate or asking them to choose between
two options. With no choice, there is no possibility for
regret. If the peanuts eVect is reduced when no choice is
40 B.J. Weber, G.B. Chapman / Organizational Behavior and Human Decision Processes 97 (2005) 31–46

involved, it lends support to the hypothesis that regret is design. There were two levels of payout magnitude: the
a cause of the peanuts eVect. If the peanuts eVect $1 level (with single-digit payouts) and the $100 level
is unaVected by the presence or absence of choice, then it (with triple-digit payouts). The three levels of probability
is unlikely to be due to regret. magnitude were low (less than 10%), medium (30% or
In Experiment 2, we manipulated the probability level less) and high (40–90%) probability to win (or lose).
in the gamble pairs and whether subjects evaluated the Each subject saw both choice questions and rating
gambles by choosing between pairs of gambles or by rat- questions. In choice questions, subjects were presented
ing individual gambles. These manipulations provided a with two gambles of the same expected value and asked to
test of whether disappointment and regret moderate the select the one they preferred. In rating questions, subjects
peanuts eVect. were presented with a single gamble and asked to rate its
One concern with manipulating regret in this fashion attractiveness on a scale from 1 to 100 for gain gambles
is the possibility that the response mode may interact (where higher numbers meant more attractive) or ¡100 to
with the peanuts eVect for reasons unrelated to regret. ¡1 for loss gambles (where more negative numbers meant
There is a large body of literature demonstrating that more unattractive). The ratings responses were converted
response mode (e.g., ratings vs. selling prices vs. choices) to choice responses by putting the gambles into pairs cor-
can have considerable inXuence on decision-makers’ responding to the pairs used in the choice response and
preferences (e.g., Lichtenstein & Slovic, 1971; Tversky, determining which gamble had been given the higher rat-
Sattath, & Slovic, 1988). Could response mode aVect the ing. This gamble was considered preferred.
peanuts eVect for reasons unrelated to regret? Few stud- Although each subject saw both types of questions,
ies have been done on the interaction between payout no subject saw the same questions for both choice and
magnitude and response mode. Casey (1991, 1994) found rating. Instead, two sets of questions were used. Each
results that seem to suggest the peanuts eVect might be subject made choices for one set of questions and rated
stronger for rating than for choice. However, these stud- gambles for the other set. Each set of questions was seen
ies were designed to examine the eVects of magnitude on by about half the subjects for choice and by the other
preference reversals that occur between response modes, half for rating, as determined randomly by the computer.
rather than examining the eVects of response mode on Additionally, each subject saw both gain questions and
the peanuts eVect as we do in Experiment 2. Thus, while loss questions. For each subject, the loss questions were
suggestive, the Casey results are inconclusive. Moreover, identical to the gain questions except for the sign of the
response mode is as strongly correlated with regret in the payout. This design resulted in 36 questions for each sub-
Casey studies as it is in the current Experiment 2. ject. Two levels of probability magnitude and three levels
Whether the use of response mode as a regret manipu- of payout magnitude resulted in six choice gain questions
lation is a problem will ultimately depend on the outcome for each subject. As each half of the subjects rated gambles
of the experiment. If there is a signiWcant interaction that the other half had chosen between, there were 12 rat-
between response mode and the peanuts eVect, additional ing gain questions per subject. Each subject saw the same
experiments will be necessary to determine if the interac- questions for losses as they saw for gains, for 36 total ques-
tion was driven by regret rather than by some other fac- tions. The various questions are presented in Table 4.
tor inherent in diVering response modes. However, if
there is no diVerence between choice and rating, the fail- Materials
ure to Wnd a diVerence could not be attributed to any The experiment was conducted on the subject’s com-
inherent diVerences between the response modes. If the puter via the World Wide Web. After reading some
peanuts eVect appears full strength when there is no pos-
sibility for regret it would clearly indicate that regret is Table 4
Experiment 2 questions
not the cause of the peanuts eVect.
Probability magnitude Outcome magnitude
Method $1 $100
Question Set 1 Low 2%, $6 2%, $600
Participants 4%, $3 4%, $300
One hundred forty-six undergraduates at Rutgers Medium 10%, $6 10%, $600
20%, $3 20%, $300
University participated in the experiment in partial ful- High 40%, $6 40%, $600
Wllment of a research participation requirement for an 80%, $3 80%, $300
introductory psychology class.
Question Set 2 Low 3%, $4 3%, $400
6%, $2 6%, $200
Design Medium 15%, $4 15%, $400
The experiment used a 2 (response mode: choice vs 30%, $2 30%, $200
rating) £ 2 (outcome sign: gains vs. losses) £ 2 (payout High 45%, $4 45%, $400
90%, $2 90%, $200
magnitude) £ 3 (probability magnitude) within-subject
 B.J. Weber, G.B. Chapman / Organizational Behavior and Human Decision Processes 97 (2005) 31–46 41

Table 5
Percentage (n) of subjects choosing the risky option in Experiment 2
Sign Probability magnitude Outcome magnitude choice Outcome magnitude ratinga
$1 $100 Peanuts eVect $1 $100 Peanuts eVect
($1 ¡ $100) ($1 ¡ $100)
Gains Low 42% (61) 41% (60) 1% 37% (35) 32% (37) 5%
Medium 40% (58) 27% (40) 13% 31% (36) 26% (32) 5%
High 24% (35) 10% (14) 14% 22% (29) 3% (4) 19%
Losses Low 62% (90) 59% (86) 3% 58% (57) 57% (69) 1%
Medium 62% (91) 64% (94) ¡2% 59% (70) 66% (84) ¡7%
High 69% (101) 82% (119) ¡13% 53% (69) 89% (118) ¡36%
a
Percentages shown are choices inferred from ratings.

instructions, subjects were presented with four screens of
questions: a screen of gains choice questions, a screen of
gains rating questions, a screen of losses choice ques-
tions, and a screen of losses rating questions. Thus sub-
jects always saw the ratings and choice questions
separately: they were never on the screen at the same
time. The two gains screens were always presented con-
secutively, as were the two losses screens. Whether gains
or losses were presented Wrst was determined randomly
for each subject. For each subject, the choice screen in
each domain always preceded the ratings screen, or vice
versa; to prevent order eVects, whether the ratings or
choices screen was presented Wrst was determined ran-
domly for each subject. The two ratings questions com-
pared to infer a choice were not presented side-by-side,
but separately as part of a list of single-evaluation rat-
ings. To avoid order eVects, within each screen of ques-
tions, the questions were presented in a random order
for both rating and choice questions.2
Results and discussion
Participants’ ratings were converted to choices by
comparing the separately given ratings of the two
options. The gamble with the higher rating was consid-
ered preferred; if the two ratings were equal, the
response was not used in the analysis.
A logistic regression on outcome sign (gains vs.
losses) showed a signiWcant eVect, (
2 (1, N D 146) D
235.59, p < .05). (The regression coeYcient for outcome
sign was 2.05.) This indicates that subjects were indeed
risk averse for gains and risk seeking for losses, as pre-
dicted by Prospect Theory. Further analyses of data for
gains and losses were conducted separately.
Gains
As shown in Table 5, participants displayed a signiW-
cant peanuts eVect in the domain of gains. A 2 (payout
2
Including order in the analysis resulted in only one signiWcant inter-
action, a four-way interaction between payout magnitude, probability
magnitude, response mode, and rating/choice order in the domain of
losses (
2 (2, N D 146) D 8.33, p < .05). Therefore, order was not includ-
ed in any of the other analyses for Experiment 2.
magnitude) £ 3 (probability magnitude) £ 2 (response
mode) logistic analysis, performed on gains responses,
showed a signiWcant main eVect of payout magnitude
(
2 (1, N D 146) D 25.20, p < .05), indicating that the per-
centage of risk-averse responses was lower for low pay-
out magnitudes than for high ones. We did not Wnd that
subjects actually became risk-seeking for very small
gains as we did in Experiment 1; however, this is not a
requirement for the peanuts eVect.
The interaction between payout magnitude and
probability magnitude was also signiWcant, (
2 (2, N D
146) D 26.60, p < .05). This indicates that the peanuts
eVect occurred when probabilities were high but not
when probabilities were low. The interaction between
payout magnitude and response mode was not signiW-
cant, (
2 (1, N D 146) D 1.72, p > .05). This indicates that
the peanuts eVect did not diVer in size between ratings
and choice responses. The main eVects of probability
magnitude and response mode were signiWcant,
(
2 (1, N D 146) D 75.21, p < .05) and (
2 (1, N D 146)
D 4.31, p < .05), respectively, with participants being
less risk-averse for lower probabilities and for choice
responses. Data for gains responses are reported
numerically in Table 5 and graphically in Fig. 4. The
coeYcients of the logistic regression are displayed in
Table 6.3
Losses
Data for losses is also displayed in Table 5. In the
domain of losses participants displayed a signiWcant
reXected peanuts eVect. That is, they were more risk
seeking for large losses than for small ones. A 2 (payout
magnitude) £ 3 (probability magnitude) £ 2 (response
mode) logistic analysis, performed on losses responses,
showed a signiWcant main eVect of payout magnitude
(
2 (1, N D 146) D 15.10, p < .05), indicating a reXected
peanuts eVect.
The interaction between payout magnitude and prob-
ability magnitude was also signiWcant, (
2 (2, N D 146) D
3
The two-way interaction between probability level and response
mode and the three-way interaction are of no theoretical interest and
are not reported.
42 B.J. Weber, G.B. Chapman / Organizational Behavior and Human Decision Processes 97 (2005) 31–46

Fig. 4. Percentage of subjects choosing the risky option in Experiment 2: Gains.

Table 6
Logistic regression coeYcients for the log odds of choosing the safer option: gains
Factor Levels Regression Lower 95% Upper 95%
coeYcient conWdence conWdence
Payout magnitude $1 vs. $100 2.17 1.26 3.08
Probability magnitude High vs. medium ¡0.55 ¡1.03 ¡0.07
High vs. low ¡0.68 ¡1.24 ¡0.13
Response mode Choice vs. rating ¡0.09 ¡0.62 0.45
Payout magnitude ¤ probability magnitude $1 vs. $100 and high vs. medium ¡1.83 ¡2.76 ¡0.90
$1 vs. $100 and high vs. low ¡2.00 ¡3.01 ¡0.99
Payout magnitude ¤ response mode $1 vs. $100 and choice vs. rating ¡1.08 ¡2.19 0.03

35.46, p < .05). This indicates that the reXected peanuts
eVect occurred when probabilities were high but not
when probabilities were low. The interaction between
payout magnitude and response mode was signiWcant,
(
2 (1, N D 146) D 4.62, p < .05); however, this eVect indi-
cates that the peanuts eVect was slightly larger in ratings
responses than in choice responses—the opposite of
what was predicted by the regret hypothesis. The main
eVect of probability magnitude was signiWcant, (
2 (1,N
D146)D 28.19, p<.05), indicating that participants were
 B.J. Weber, G.B. Chapman / Organizational Behavior and Human Decision Processes 97 (2005) 31–46 43

Fig. 5. Percentage of subjects choosing the risky option in Experiment 2: Losses.

Table 7
Logistic regression coeYcients for the log odds of choosing the safer option: losses
Factor Levels Regression Lower 95% Upper 95%
coeYcient conWdence conWdence
Payout magnitude $1 vs. $100 1.89 1.32 2.47
Probability magnitude High vs. medium 0.18 ¡0.24 0.60
High vs. low 0.21 ¡0.29 0.71
Response mode Choice vs. rating 0.65 0.19 1.12
Payout magnitude ¤ probability magnitude $1 vs. $100 and high vs. medium ¡1.61 ¡2.27 ¡0.94
$1 vs. $100 and high vs. low ¡2.00 ¡2.76 ¡1.24
Payout magnitude ¤ response mode $1 vs. $100 and choice vs. rating ¡1.22 ¡1.87 ¡0.57

more risk seeking for higher probability gambles. The are reported numerically in Table 5 and graphically in
main eVect of response mode was not signiWcant, Fig. 5. The coeYcients of the logistic regression are dis-
(
2 (1, N D 146) D 0.27, p > .05). Data for losses responses played in Table 7.3
44 B.J. Weber, G.B. Chapman / Organizational Behavior and Human Decision Processes 97 (2005) 31–46
Discussion
As in Experiment 1, the interaction between probabil-
ity magnitude and payout magnitude cannot be
explained by the shape of the utility function. This result
instead suggests that the peanuts eVect is related to dis-
appointment. When probabilities, and therefore disap-
pointment, are low, neither a peanuts eVect (gains) nor a
reXected peanuts eVect (losses) occurs. The peanuts eVect
materializes only when probabilities are high, making
disappointment possible. It should be noted that the cur-
rent study did not include a direct measure of disap-
pointment. Instead we infer that the moderating eVect of
probability level of the peanuts eVect is due to the eVect
of probability level on anticipated disappointment.
In contrast, the results do not support a role of regret
in the peanuts eVect. In the domain of gains there was no
eVect of response mode on the peanuts eVect. Because a
choiceless response must by deWnition be regretless, this
suggests that regret is not related to the peanuts eVect. In
the domain of losses, the reXected peanuts eVect was
actually slightly larger for rating responses than for
choice responses. This is the opposite of what the regret
hypothesis predicts—if the reXected peanuts eVect is due
to regret, the eVect should be smaller in the absence of
regret, not larger. Why this counter-predicted eVect
occurs, and only in the domain of losses, is unclear.
Casey (1991, 1994) also found results that seem to sug-
gest the peanuts eVect might be stronger for rating than
for choice. However, these studies were not designed to
examine the peanuts eVect, and thus the results are only
suggestive.
Earlier we discussed the possibility that diVerences
between rating and choice not related to regret could
inXuenced the outcome of the present experiment: had
we found that the peanuts eVect diVered between rating
and choice, it would have been impossible to determine
if the diVerence was due to the eVects of regret or to
unrelated diVerences between the two response modes.
As we did not Wnd a diVerence in the size of the peanuts
eVect between ratings and choice, at least in the domain
of gains, this is not an issue. We can safely conclude that
the evidence suggests that regret is not responsible for
the peanuts eVect.
The fact that a reXected peanuts eVect occurs in the
domain of losses is consistent with the common Wnding
that decision makers are risk averse for gains but risk
seeking for losses (Kahneman & Tversky, 1979). The
results of the present study suggest that this “reXection
eVect” inXuences the peanuts eVect as well, reXecting it
across the origin. In the domain of gains, decision mak-
ers generally risk averse, but are less so for small
amounts of money than for large ones. In the domain of
losses, decision makers are generally risk seeking, but are
less so for small amounts of money than for large ones.
However, the results of the present study disagree with
Hogarth and Einhorn (1990), which found that decision-
makers are more risk averse for both large losses and
large gains than they are for small losses and small gains.
The reason for this discrepancy is not clear. Some of the
gambles used by Hogarth and Einhorn involved much
larger losses than those used in the present study, with
expected values of ¡$20,000. It has been suggested that
the usual pattern of risk-seeking behavior for losses may
break down when the losses incurred are large enough to
result in Wnancial ruin (Kahneman & Tversky, 1979).
Therefore we might expect to Wnd a peanuts eVect for
losses with outcomes in this range, rather than a
reXected peanuts eVect. However, some of the gambles
used in Hogarth and Einhorn (1990) had values compa-
rable to those used in the present experiment, with
expected values of ¡$200, and they found the peanuts
eVect (rather than the reXected peanuts eVect) for these
gambles as well. While the results of Experiment 2 sug-
gest that a reXected peanuts eVect may sometimes occur
for losses, it remains unclear whether this occurs at all
times or for all sizes of monetary payouts.
General discussion
The peanuts eVect is not a well-understood or well-stud-
ied phenomenon. The current studies provide evidence as
to the conditions under which the phenomenon occurs and
the psychological factors that may produce the eVect.
Conditions that produce the peanuts eVect
The current experiments help to Xesh out understand-
ing of what conditions generate peanuts eVect responses
in decision makers. The size of the magnitude increase
between the small-magnitude gambles and the large-
magnitude gambles is an important factor, but by no
means the only one. Decision makers certainly choose
diVerently when asked to pick between a 50% chance of
$20 and $10 for sure than when asked to chose between
a 50% chance of $200 and $100 for sure, but this same
10-fold payout increase does not induce the peanuts
eVect at all points on the magnitude scale—the diVerence
between $100 and $1000 is less likely to induce a peanuts
eVect than the diVerence between $10 and $100.
The peanuts eVect is larger for larger probabilities;
however, it does not require certainty. Although Marko-
witz’s original example of the peanuts eVect involved
certainty, it is not required to obtain the phenomenon.
The peanuts eVect is also larger when the ratio between
the probabilities of the two outcomes is larger. In fact,
Experiment 1 found a reverse peanuts eVect for the
smallest probability ratio. At least in some cases, the
peanuts eVect reXects across the origin into the domain
of losses, with decision makers becoming more risk-seek-
ing for large losses than for small losses.
 B.J. Weber, G.B. Chapman / Organizational Behavior and Human Decision Processes 97 (2005) 31–46
It is not clear whether subjects actually become risk
seeking for suYciently small gains, as Markowitz pos-
tulated, or if they merely become less risk averse.
Experiment 1 found that subjects were slightly risk
seeking for the smallest gain payouts. However, Experi-
ment 2 did not replicate these Wndings. Markowitz’s
examples of risk seeking involved very small gains of
less than $1, smaller than the outcomes included in the
current experiments. Future experiments that include
gambles for very small payouts may help shed light on
this issue.
Psychological accounts of the peanuts eVect
Markowitz’s (1952) account of the peanuts eVect
speculated that it was caused by the shape of the utility
function for money. This account would make the pea-
nuts eVect not only consistent with Prospect Theory, but
also potentially normative, since normative EUT allows
for any utility function shape. The current studies, how-
ever, indicate that the peanuts eVect cannot be plausibly
explained by the shape of the utility function. A utility
function cannot account for the decrease in the size of
the peanuts eVect for smaller probabilities. This results
pattern would require many diVerent utility functions
for diVerent probability levels, which is not permitted by
either normative theories or by Prospect Theory. There-
fore the present results suggest that the peanuts eVect is
nonnormative and cannot be accounted for by Prospect
Theory. Although it would be possible to posit a descrip-
tive theory where the shape of the utility function was
inXuenced by probability level, such an account would
be ad hoc and non-parsimonious.
Experiment 2 supports the hypothesis that avoidance
of anticipated disappointment is a cause of the peanuts
eVect. The peanuts eVect vanishes at low probabilities,
precisely when previous researchers have found that dis-
appointment is also low. Future research that includes
direct measures of the anticipated disappointment expe-
rienced by subjects who display the peanuts eVect would
strengthen this conclusion.
The results of the current studies do not seem to indi-
cate that regret is related to the peanuts eVect in any
way. The size of the peanuts eVect is not reduced when
subjects rate options rather than choosing between them,
circumstances that cannot produce regret. Future
research measuring anticipated regret of subjects who
display the peanuts eVect when choosing between pea-
nuts would help strengthen this conclusion, as well.
A clearer understanding of the mechanisms underly-
ing the peanuts eVect has both theoretical and practical
value. The peanuts eVect has implications for under-
standing the parallels between decision processes in
risky choice and those in intertemporal choice (Prelec &
Loewenstein, 1991). Because the peanuts eVect runs in
the opposite direction from the otherwise analogous
45
magnitude eVect in intertemporal choice, it is problem-
atic for any common account of the two types of deci-
sions. This puzzle may be solved if, as the current data
suggest, disappointment is the psychological mecha-
nism that produces the peanuts eVect. That is, it may be
that risky choice and intertemporal choice are parallel
for the most part, with a common set of decision pro-
cesses underlying both and producing analogous sets of
biases in the two domains. Some decision processes,
such as disappointment, however, may apply only to
one domain and thus produce occasional diVerences
between risky and intertemporal choice. If inXuences
such as disappointment could be removed, the two
domains would appear more parallel than they ordinar-
ily would be.
The peanuts eVect has practical importance as well.
Most studies of decision making (including the current
studies) use either hypothetical scenarios or decisions
with real but small consequences. Decisions for trivial
laboratory outcomes may not always be similar to deci-
sions made in the real world about weighty conse-
quences. Consider studies by Casey (1991, 1994): besides
demonstrating the peanuts eVect, these studies also
found that a well-studied bid/choice preference reversal
phenomenon occurs in the opposite of the standard
direction when studied using large payouts instead of the
more usual small ones. This unexpected reversal of a
widely established Wnding underscores the importance of
remembering that decision makers do not behave the
same way for small payouts as they do for large ones
Decision making studies often involve choices
between (usually modest) amounts of money or scenar-
ios about everyday, low-stakes outcomes, such as aca-
demic assignments or consumer products. In contrast,
the real-world choices where good decision making is
most crucial involve high stakes such as life-and-death
medical treatment choices, policy decisions about
whether to go to war, or personal decisions about whom
to marry. The peanuts eVect illustrates one respect in
which the low payout, low-stakes decisions studied in
laboratory tasks will likely diVer from the high-stakes
decisions made in real life.
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