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Evaluation of Probabilities and Brain Activity - An
EEG-Study
Ralf Morgenstern
2,∗
, Marcus Heldmann
1
, Thomas Münte
1
, and Bodo Vogt
2
1
Otto-von-Guericke-University Magdeburg, Neuropsychology, Universitätsplatz 2,
P.O. Box 4120, 39106 Magdeburg, Germany
2
Otto-von-Guericke-University Magdeburg, Faculty of Economics and Management,
Universitätsplatz 2, P.O.Box 4120, 39106 Magdeburg, Germany
ralf.morgenstern@ww.uni-magdeburg.de
Abstract.
This paper focuses on the problem of probability weighting in the
evaluation of lotteries. According to Prospect Theory a probability of 0.5 has a
weight of smaller than 0.5. We conduct an EEG experiment in which we com-
pare the results of the evaluation of binary lotteries by certainty equivalents
with the results of the bisection method. The bisection method gives the amount
of money that corresponds to the midpoint of the utilities of the two payoffs in a
binary lottery as it has been shown previously. In this method probabilities are
not evaluated. We analyzed EEG data focused on whether a probability is eva-
luated or not. Our data show differences between the two methods connected
with the attention towards sure monetary payoffs, but they do not show brain
activity connected with a devaluation of the probability of 0.5.
1 Introduction and Theory
In risky decision making Prospect Theory [1, 2] is one of the most accepted theories.
One central point in Prospect Theory is probability weighting. One key aspect of the
probability weighting function is that the probability of 0.5 has a weight smaller than
0.5. We design an EEG study in which we try to find brain activity associated with
the perception of the probability of 0.5. In a previous EEG study [3] the bisection
method as a direct method without risk was compared with the certainty equivalent
method as an indirect method that is connected with risk. Both methods are used for
eliciting a utility function and this study revealed that the bisection method is suitable
as a reference method for eliciting utility functions. We use these two methods to
isolate the effect of the evaluation of the probability of 0.5 in the experimental design
and in the EEG data.
In the following part we shortly describe both methods and the problem in more
detail. Then we present the experimental part with our results and the conclusion.
1.1 Certainty Equivalent Method
The certainty equivalent method elicits a utility function by determining certainty
equivalents of lotteries in which the payoffs
and
occur with a probability of
∗
Corresponding author.
