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Do people exploit risk–reward structures to simplify information processing in risky choice?

Author

Listed:
  • Christina Leuker

    (Max Planck Institute for Human Development)

  • Thorsten Pachur

    (Max Planck Institute for Human Development)

  • Ralph Hertwig

    (Max Planck Institute for Human Development)

  • Timothy J. Pleskac

    (Max Planck Institute for Human Development
    University of Kansas Max Planck Institute for Human Development)

Abstract

The high rewards people desire are often unlikely. Here, we investigated whether decision-makers exploit such ecological correlations between risks and rewards to simplify their information processing. In a learning phase, participants were exposed to options in which risks and rewards were negatively correlated, positively correlated, or uncorrelated. In a subsequent risky choice task, where the emphasis was on making either a ‘fast’ or the ‘best’ possible choice, participants’ eye movements were tracked. The changes in the number, distribution, and direction of eye fixations in ‘fast’ trials did not differ between the risk–reward conditions. In ‘best’ trials, however, participants in the negatively correlated condition lowered their evidence threshold, responded faster, and deviated from expected value maximization more than in the other risk–reward conditions. The results underscore how conclusions about people’s cognitive processing in risky choice can depend on risk–reward structures, an often neglected environmental property.

Suggested Citation

  • Christina Leuker & Thorsten Pachur & Ralph Hertwig & Timothy J. Pleskac, 2019. "Do people exploit risk–reward structures to simplify information processing in risky choice?," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 5(1), pages 76-94, August.
  • Handle: RePEc:spr:jesaex:v:5:y:2019:i:1:d:10.1007_s40881-019-00068-y
    DOI: 10.1007/s40881-019-00068-y
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    References listed on IDEAS

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    1. Martin G. Kocher & Julius Pahlke & Stefan T. Trautmann, 2013. "Tempus Fugit : Time Pressure in Risky Decisions," Management Science, INFORMS, vol. 59(10), pages 2380-2391, October.
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    3. Daniel Ellsberg, 1961. "Risk, Ambiguity, and the Savage Axioms," The Quarterly Journal of Economics, Oxford University Press, vol. 75(4), pages 643-669.
    4. Herbert A. Simon, 1955. "A Behavioral Model of Rational Choice," The Quarterly Journal of Economics, Oxford University Press, vol. 69(1), pages 99-118.
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    Cited by:

    1. William J. Skylark & Kieran T. F. Chan & George D. Farmer & Kai W. Gaskin & Amelia R. Miller, 2020. "The delay-reward heuristic: What do people expect in intertemporal choice tasks?," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 15(5), pages 611-629, September.

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    More about this item

    Keywords

    Risk–reward; Decisions under risk; Ecological rationality; Eye tracking; Drift-diffusion model;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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