Certainty and possibility effects

What are Certainty and Possibility Effects?

The certainty effect concerns the special weight given to a sure outcome relative to a probable one. The possibility effect describes the impact of making an outcome possible when it was previously impossible.

Research basis

Kahneman and Tversky (1979) examined certainty and small-probability choices as part of prospect theory. Decision weights describe an outcome’s influence on choice; they need not equal a person’s stated probability estimate.

Examples of Certainty and Possibility Effects

Possibility

Changing a chance from 0% to 5% or from 30% to 35% adds five percentage points in either case. If the first change affects a choice more, that pattern could be relevant to a possibility effect. The equal numerical change can carry a different weight in the decision.

Certainty

For certainty, compare reducing a risk from 5% to 0% with reducing it from 50% to 45%. Both remove five percentage points, but only the first eliminates the risk. The example illustrates the distinction; it does not establish how strongly every person will respond.

These concepts can help formulate questions about lotteries and insurance.