Adapting Theory: Limited Neural Resource, Attention and Risk Attitude

Abstract

This paper presents a new descriptive theory for decision making under risk, called adapting theory, which deals with how the brain will adapt the distribution of limited neural resources to encode subjective utility(SV) for efficient use in contexts. This distribution will affect the relative utilities between each payoff, finally determining the risk attitude. Therefore, the adaptation will determine the change in risk attitude. We propose that the adaptation of distribution can be divided into two dimensions, the degree of concentration (utility of a given value) and the location of concentration(attention) of neural resources. By introducing four assumptions on the distribution, this paper studies how those two dimensions vary accordingly in decision contexts, and finally determines risk attitude. By specifying these two parameters as a function of payoffs, our theory provides a novel and unified account of many empirical phenomena. Our theory also yields new predictions, including some that distinguish it from prospect theory and the salience theory. At the same time, our theory can be applied in more decision contexts than prospect theory. In addition, the implications of our theory may provide a useful insight for those decision theories based on the utility function.