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Do People Make Decisions Under Risk Based on Ignorance? An Empirical Test of the Priority Heuristic against Cumulative Prospect Theory

Author

Listed:
  • Andreas Glöckner

    (Max Planck Institute for Research on Collective Goods, Bonn)

  • Tilmann Betsch

    (University of Erfurt)

Abstract

Brandstätter, Gigerenzer and Hertwig (2006) put forward the priority heuristic (PH) as a fast and frugal heuristic for decisions under risk. According to the PH, individuals do not make trade-offs between gains and probabilities, as proposed by expected utility models such as cumulative prospect theory (CPT), but use information in a non-compensatory manner and ignore information. We conducted three studies to test the PH empirically by analyzing individual choice patterns, decision times and information search parameters in diagnostic decision tasks. Results on all three dependent variables conflict with the predictions of the PH and can be better explained by the CPT. The predictive accuracy of the PH was high for decision tasks in which the predic-tions align with the predictions of the CPT but very low for decision tasks in which this was not the case. The findings indicate that earlier results supporting the PH might have been caused by the selection of decision tasks that were not diagnostic for the PH as compared to CPT.

Suggested Citation

  • Andreas Glöckner & Tilmann Betsch, 2008. "Do People Make Decisions Under Risk Based on Ignorance? An Empirical Test of the Priority Heuristic against Cumulative Prospect Theory," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2008_05, Max Planck Institute for Research on Collective Goods.
    • Handle: RePEc:mpg:wpaper:2008_5
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    References listed on IDEAS

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    Cited by:

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    15. Venkatraman, Vinod & Payne, John W. & Huettel, Scott A., 2014. "An overall probability of winning heuristic for complex risky decisions: Choice and eye fixation evidence," Organizational Behavior and Human Decision Processes, Elsevier, vol. 125(2), pages 73-87.
    16. John R. Doyle & Catherine H. Chen & Krishna Savani, 2011. "New designs for research in delay discounting," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 6(8), pages 759-770, December.
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    23. Tomasz Potocki, 2012. "Cumulative Prospect Theory as a model of economic rationality," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 31.
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    More about this item

    Keywords

    Decision Strategy; Fast and Frugal Heuristics; Bounded Rationality; Decision Latency; Process Tracing; Cumulative Prospect Theory;
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