Multiple Prospect Framing and Decision Behavior: The Mediational Roles of Perceived Riskiness and Perceived Ambiguity

Decision makers facing a multiple prospect, which is a bundle of single prospects, are influenced by whether outcome information is framed narrowly (segregated) or broadly (aggregated). The present research hypothesizes perceived riskiness and perceived ambiguity as two distinct mediators of the effect of broad versus narrow prospect framing on decision behavior. Perceived riskiness and perceived ambiguity were conceptually defined as psychological constructs and new multi-item scales were developed and validated to operationalized them. Two experiments (a 100-shot gamble in Experiment 1, N=118, and a 30-year retirement investment in Experiment 2, N=84) were conducted. Both experiments supported Hypothesis 1 that riskiness and ambiguity perceptions are empirically distinct constructs. Hypothesis 2, that perceived riskiness mediates the effect of multiple prospect framing on decision behavior was supported in Experiment 1, but not Experiment 2. Both experiments supported Hypothesis 3 that perceived ambiguity mediates the effect of multiple prospect framing on decision behavior. These findings advance our understanding of the psychological mechanisms underlying framing effects for multiple prospects and have substantial business and policy implications.