What are the chances? How descriptions of probability affect risky decisions

<p>People make different decisions when they know the odds of an event occurring, (e.g. told 10% chance of an earthquake that year) than when they draw on only their own experience (e.g. living in a city with, on average, one earthquake every 10 years). It may be that when we make decisions based on our past experience (decisions from experience) we are more likely to choose a risky option when it can lead to the biggest win and avoid it when it can lead to the biggest loss, this effect is called the Extreme-Outcome rule. Across three Experiments we tested the Extreme-Outcome rule by having participants make repeated choices between either safe or risky options which had the same expected value. In each experiment, we varied the magnitude of the reinforcer’s participants could win in both an Experience condition and a condition that had both description and experience information. In Experiment 1 where we had two reinforcer sizes (small and large) we found an Extreme-Outcome effect in the Experience condition, but not the Description-Experience condition. In Experiment 2 we tested a prediction of the Extreme-Outcome rule that participants would be sensitive to the best and worst outcome by adding another reinforcer size (reinforcers were small, medium and large) and therefore on some trials neither alternative included an extreme outcome. We also removed zero as a potential outcome to investigate whether zero aversion might be driving the effect of reinforcer magnitude in the Experience condition. We did not find response patterns consistent with an Extreme-Outcome rule in the Experience condition. Instead, participants were least risk seeking when the reinforcer was small, but there was no difference in levels of risk seeking between the medium and large reinforcer trials. In other words, there was an effect of the low-extreme outcome but not the high-extreme outcome. Like Experiment 1, in the Description-Experience condition risk preference was not influenced by reinforcer size, but the absolute levels were higher. To investigate whether this increase in risk preference was due to removing the zero, in Experiment 3 we manipulated whether zero was present or absent. When zero was absent, risk preference was not influenced by the size of the reinforcer in the Description-Experience condition, but there was an effect of the low-extreme outcome when zero was present. We also found an effect of the low extreme outcome in the Experience condition regardless of whether zero was present or absent. Overall, these findings suggest the Extreme-Outcome rule needs to be modified to take into account the effect of the low extreme but not the high extreme outcome.</p>

What are the chances? How descriptions of probability affect risky decisions

<p>People make different decisions when they know the odds of an event occurring, (e.g. told 10% chance of an earthquake that year) than when they draw on only their own experience (e.g. living in a city with, on average, one earthquake every 10 years). It may be that when we make decisions based on our past experience (decisions from experience) we are more likely to choose a risky option when it can lead to the biggest win and avoid it when it can lead to the biggest loss, this effect is called the Extreme-Outcome rule. Across three Experiments we tested the Extreme-Outcome rule by having participants make repeated choices between either safe or risky options which had the same expected value. In each experiment, we varied the magnitude of the reinforcer’s participants could win in both an Experience condition and a condition that had both description and experience information. In Experiment 1 where we had two reinforcer sizes (small and large) we found an Extreme-Outcome effect in the Experience condition, but not the Description-Experience condition. In Experiment 2 we tested a prediction of the Extreme-Outcome rule that participants would be sensitive to the best and worst outcome by adding another reinforcer size (reinforcers were small, medium and large) and therefore on some trials neither alternative included an extreme outcome. We also removed zero as a potential outcome to investigate whether zero aversion might be driving the effect of reinforcer magnitude in the Experience condition. We did not find response patterns consistent with an Extreme-Outcome rule in the Experience condition. Instead, participants were least risk seeking when the reinforcer was small, but there was no difference in levels of risk seeking between the medium and large reinforcer trials. In other words, there was an effect of the low-extreme outcome but not the high-extreme outcome. Like Experiment 1, in the Description-Experience condition risk preference was not influenced by reinforcer size, but the absolute levels were higher. To investigate whether this increase in risk preference was due to removing the zero, in Experiment 3 we manipulated whether zero was present or absent. When zero was absent, risk preference was not influenced by the size of the reinforcer in the Description-Experience condition, but there was an effect of the low-extreme outcome when zero was present. We also found an effect of the low extreme outcome in the Experience condition regardless of whether zero was present or absent. Overall, these findings suggest the Extreme-Outcome rule needs to be modified to take into account the effect of the low extreme but not the high extreme outcome.</p>

Exploring the Factors Influencing Expansion of Nuclear Energy in Croatia

Nuclear energy is an option that enables a significant reduction of greenhouse gases emissions at the national and European Union (EU) level. However, it is also an option that is mostly influenced by public opinion and an option that has strong cross-border impact. Croatia does not consider nuclear options, but a possible future turn to nuclear might have an influence on other EU countries. The possibility for such a turn is analyzed, taking into account public opinion as well as historical and economic factors. Based on the results of a public opinion survey, it can be deduced that the Croatian public is not inclined to nuclear energy and considers it a risky option, although nuclear power plants in neighboring countries are not perceived as a high-risk threat. Trust in government as an information source is very low. Despite historical aspects that suggest scientific and expert knowledge capable of handling nuclear build, public opinion and the low economic framework indicate that a turn a to nuclear in Croatia is highly unlikely.

Aspirations or survival: decision modeling and the effect of focus of attention in risky choice

Purpose This research aims to test focus of attention effects in risky choice. Design/methodology/approach As opposed to traditional aspiration-level theory, the shifting-focus concept introduces a second reference point, the survival point, and assumes a shifting focus of attention between the two reference points. In this conceptualization, risk-taking is a function of focus of attention on the survival reference point or the aspiration-level and resources relative to the two reference points. Four randomized controlled studies tested this concept. Findings Study 1 showed that with aspiration focus the probability of choosing a risky option was higher below an aspiration-level than above it. With survival focus, the effect was reversed. Study 2 found that close to the survival reference point, the probability of choosing a risky option was higher with aspiration focus relative to survival focus. Study 3 revealed that with scarce resources the risk taken was higher with aspiration focus than with survival focus, and the scarcer the resources the stronger was the effect. Study 4 demonstrated that with aspiration focus the risk taken was higher below an aspiration-level than above it. With survival focus the effect was reversed. Originality/value In addition to providing support for the validity of the shifting focus concept, this paper elaborates on the theoretical model by providing evidence for moderation effects. Risk-taking was affected by a focus of attention on one of two reference points, and the effect was moderated by resources relative to the two focal points. An advanced model is proposed to capture the effects of focus of attention and resources on risk-taking behavior.

Risky Choice and Memory for Effort: Hard Work Stands Out

When deciding between different courses of action, both the potential outcomes and the costs of making a choice should be considered. To date, most studies of risk-sensitive choice have focused on the probability of different reward amounts. Here we studied choice between options that varied in the riskiness of the effort (number of responses) required. People made repeated choices between pairs of options that required them to click different numbers of sequentially presented response circles. Easy (low effort) options led to small numbers of response circles, whereas hard (high effort) options led to larger numbers of response circles. For both easy and hard options, safe options led to a fixed effort, whereas risky options led to variable effort that, with a 50/50 chance, required more or less effort. Participants who showed a preference for easier over harder options (63% in Experiment 1 and 93% in Experiment 2) were risk averse overall. Participants were more risk averse for decisions involving hard options than for decisions involving easy options. On subsequent memory tests, people most readily recalled the hardest outcome, and they overestimated its frequency of occurrence. Strikingly, memory for the effort associated with each risky option strongly correlated with risky choices for both easy-effort and hard-effort choices, suggesting that the memory may determine choices based on risky effort.

Decisions from experience: adaptive information search and choice in younger and older adults

In real-world decision making, choice outcomes, and their probabilities are often not known a priori but must be learned from experience. The dopamine hypothesis of cognitive aging predicts that component processes of experience-based decision making (information search and stimulus–reward association learning) decline with age. Many existing studies in this domain have used complex neuropsychological tasks that are not optimal for testing predictions about specific cognitive processes. Here we used an experimental sampling paradigm with real monetary payoffs that provided separate measures of information search and choice for gains and losses. Compared with younger adults, older adults sought less information about uncertain risky options. However, like younger adults, older participants also showed evidence of adaptive decision making. When the desirable outcome of the risky option was rare (p = 0.10 or 0.20), both age groups engaged in more information search and made fewer risky choices, compared with when the desirable outcome of the risky option was frequent (p = 0.80 or 0.90). Furthermore, loss options elicited more sampling and greater modulation of risk taking, compared with gain options. Overall, these findings support predictions of the dopamine hypothesis of cognitive aging, but they also highlight the need for additional research into the interaction of age and valence (gain vs. loss) on experience-based choice.

Decisions from experience: adaptive information search and choice in younger and older adults

In real-world decision making, choice outcomes, and their probabilities are often not known a priori but must be learned from experience. The dopamine hypothesis of cognitive aging predicts that component processes of experience-based decision making (information search and stimulus–reward association learning) decline with age. Many existing studies in this domain have used complex neuropsychological tasks that are not optimal for testing predictions about specific cognitive processes. Here we used an experimental sampling paradigm with real monetary payoffs that provided separate measures of information search and choice for gains and losses. Compared with younger adults, older adults sought less information about uncertain risky options. However, like younger adults, older participants also showed evidence of adaptive decision making. When the desirable outcome of the risky option was rare (p = 0.10 or 0.20), both age groups engaged in more information search and made fewer risky choices, compared with when the desirable outcome of the risky option was frequent (p = 0.80 or 0.90). Furthermore, loss options elicited more sampling and greater modulation of risk taking, compared with gain options. Overall, these findings support predictions of the dopamine hypothesis of cognitive aging, but they also highlight the need for additional research into the interaction of age and valence (gain vs. loss) on experience-based choice.

Travelers’ Bi-Attribute Decision Making on the Risky Mode Choice with Flow-Dependent Salience Theory

The purpose of this paper is to provide new insights into travelers’ bi-attribute (travel time and travel cost) risky mode choice behavior with one risky option (i.e., the highway) and one non-risky option (i.e., the transit) from the long-term planning perspective. In the classical Wardropian User Equilibrium principle, travelers make their choice decisions only based on the mean travel times, which might be an unrealistic behavioral assumption. In this paper, an alternative approach is proposed to partially remedy this unrealistic behavioral assumption with flow-dependent salience theory, based on which we study travelers’ context-dependent bi-attribute mode choice behavior, focusing on the effect of travelers’ salience characteristic. Travelers’ attention is drawn to the bi-attribute salient travel utility, and then the objective probability of each state for the risky world is distorted in favor of this bi-attribute salient travel utility. A long-term bi-attribute salient user equilibrium will be achieved when no traveler can improve their bi-attribute salient travel utility by unilaterally changing the choice decisions. Conditions for the existence and uniqueness of the bi-attribute salient user equilibrium are presented, and based on the equilibrium results, we analyze travelers’ risk attitudes in this bi-attribute risky choice problem. Finally, numerical examples are conducted to examine the sensitivity of equilibrium solutions to the input parameters, which are cost difference and salience bias.

The Price of Predictability: Estimating Inconsistency Premiums in Social Interactions

For financial decision-making, people trade off the expected value (return) and the variance (risk) of an option, preferring higher returns to lower ones and lower risks to higher ones. To make decision-makers indifferent between a risky and risk-free option, the expected value of the risky option must exceed the value of the risk-free option by a certain amount—the risk premium. Previous psychological research suggests that similar to risk aversion, people dislike inconsistency in an interaction partner’s behavior. In eight experiments (total N = 2,412) we pitted this inconsistency aversion against the expected returns from interacting with an inconsistent partner. We identified the additional expected return of interacting with an inconsistent partner that must be granted to make decision-makers prefer a more profitable, but inconsistent partner to a consistent, but less profitable one. We locate this inconsistency premium at around 31% of the expected value of the risk-free option.

Sharing or gambling? On risk attitudes in social contexts

Decisions under risk are often embedded in a social context that we usually abstract from when studying decision-making in the laboratory. In contrast to that practice, our experiment investigates whether risk-taking is affected by social comparisons. In particular, we focus on situations where some amount of money has to be allocated to two parties: either the amount can be shared, or a random device allocates the entire amount to one of the parties. We find that the social context of the decision matters strongly: When participants are in a disadvantageous initial position compared to the other party, they select the risky option much more often than in a purely individual decision, identical in all other respects. Overall, we find that individuals are relatively more risk-seeking in the socially unfavorable domain than in isolation, in contrast to the favorable one, where we find no or little change in elicited risk attitudes in comparison to an isolated decision.