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Biased samples not mode of presentation: Re-examining the apparent underweighting of rare events in experience-based choice

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  • Rakow, Tim
  • Demes, Kali A.
  • Newell, Ben R.
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    Abstract

    Most experimental investigations of risky choice provide participants with a description of the probabilities and outcomes for each option, and observe that small probabilities are overweighted. However, when payoffs are learned from repeated experience of outcomes (as in many real-world decisions), different patterns of choice are observed--consistent with underweighting rare events. We re-examined this phenomenon to determine whether biased sampling and recency effects in experience-based choice could account for this description-experience gap. Two hundred and forty paid participants made choices for 12 pairs of simple gambles. In the objective description condition, probabilities and outcomes were specified. In the free sampling condition, participants observed repeated plays of each gamble before choosing. Participants in four yoked conditions received the same information as the free sampling participants--either described or experienced. Differences between objective description and free sampling were consistent with underweighting rare events in experience-based choice. However, consistent with a biased sampling account, patterns of choice in the yoked conditions barely differed from the free sampling condition: given identical information, presentation mode has no effect. Recency effects in choice occurred only when outcomes were actively sampled, and were unaffected by working memory capacity. The absence of recency for passive observation implies actor-observer differences in forming expectations or testing hypotheses. The results provide no support for the claim that decisions from description and decisions from experience require separate descriptive theories.

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    Bibliographic Info

    Article provided by Elsevier in its journal Organizational Behavior and Human Decision Processes.

    Volume (Year): 106 (2008)
    Issue (Month): 2 (July)
    Pages: 168-179

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    Handle: RePEc:eee:jobhdp:v:106:y:2008:i:2:p:168-179

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    Web page: http://www.elsevier.com/locate/obhdp

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    1. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
    2. Laibson, David & Zeckhauser, Richard, 1998. "Amos Tversky and the Ascent of Behavioral Economics," Journal of Risk and Uncertainty, Springer, vol. 16(1), pages 7-47, April.
    3. Harvey, Nigel & Koehler, Derek J. & Ayton, Peter, 1997. "Judgments of Decision Effectiveness: Actor-Observer Differences in Overconfidence," Organizational Behavior and Human Decision Processes, Elsevier, vol. 70(3), pages 267-282, June.
    4. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
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    Cited by:
    1. Barron, Greg & Ursino, Giovanni, 2013. "Underweighting rare events in experience based decisions: Beyond sample error," Journal of Economic Psychology, Elsevier, vol. 39(C), pages 278-286.
    2. Martin Wallmeier, 2011. "Beyond payoff diagrams: how to present risk and return characteristics of structured products," Financial Markets and Portfolio Management, Springer, vol. 25(3), pages 313-338, September.

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