Context-Dependent Prospects

A fundamental insight from experiments on riskless choice is that context matters, a phenomenon first formalized by Tversky and Simonson (1993). In this paper I adapt their theory and extend it to risky environments. I show that the theory offers an explanation for several prominent regularities in risky choice, exposing a connection between anomalous behavior in riskless and risky environments. In contrast to most existing theories, the explanation offered does not depend on decision makers' perception or treatment of risk.