Certainty effect


The certainty effect is the psychological effect resulting from the reduction of probability from certainty to probable. It is an idea introduced in prospect theory.
Normally a reduction in the probability 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?
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 exceeds that of A by 20%.
Now, consider this problem:
Which of the following options do you prefer?
In this case, 42% of participants chose option C while 58% chose option D.
As before, the expected value of the first option was 20% lower than that of option D however, when neither option was certain, risk-taking increased.

Papers

General references