New paradoxes of risky decision making.

Birnbaum, Michael H.

doi:10.1037/0033-295x.115.2.463

Cited by 343 publications

(412 citation statements)

References 192 publications

(530 reference statements)

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“…Additionally, the strength of preference between 330 monetary outcomes seems to be taken into account by the subjects, and axioms that prevent rankings to be based on average-goodness were violated on a large scale. 6 All of these findings are compatible with UEU and thus constitute evidence in favour of the criterion. Yet, we also found that under particular circumstances, people appear to prefer sets that are obviously less attractive in 335 terms of the arithmetic mean over the outcomes, which can only be explained by UEU if an extremely risk averse utility function is assumed.…”

Section: Discussion Of the Experimentssupporting

confidence: 70%

From Uniform Expected Utility to Uniform Rank-Dependent Utility: An experimental study

Vrijdags

Marchant

2015

Journal of Mathematical Psychology

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This paper presents an experimental investigation of the Uniform Expected Utility (UEU) criterion, a model for ranking sets of uncertain outcomes. We verified whether the two behavioral axioms characterizing UEU, i.e., Averaging and Restricted Independence, are satisfied in a pairwise choice experiment with monetary gains. Our results show that neither of these axioms holds in general. Averaging in particular, appears to be violated on a large scale. On the basis of the current study and a previous one, we can conclude that none of the models for set ranking that have been axiomatically characterized so far is able to model observed choices between sets of possible outcomes in a satisfactory fashion. In this paper we therefore lay out the foundations for a new descriptive model for set ranking: the Uniform Rank-Dependent Utility (URDU) criterion.

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Section: Discussion Of the Experimentssupporting

confidence: 70%

From Uniform Expected Utility to Uniform Rank-Dependent Utility: An experimental study

Vrijdags

Marchant

2015

Journal of Mathematical Psychology

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“…in Table 1); and Birnbaum (2008) documented a splitting effect (splitting a possible outcome into two less desirable outcomes can increase its attractiveness; see Row 10 in Table 1). …”

Section: Classical Demonstration Current Replicationmentioning

confidence: 99%

“…Our analysis of this tendency, summarized in Figure The splitting effect. Studies of decisions under risk show that splitting an attractive outcome into two distinct outcomes can increase the attractiveness of a prospect even when it reduces its expected value (see Birnbaum, 2008;Tversky & Kahneman, 1986; and see Row 10 in Table 1). Figure 9 summarizes our effort to replicate this effect in our paradigm.…”

Section: The Reflection and Reversed Reflection Effects A Comparisonmentioning

confidence: 99%

From anomalies to forecasts: Toward a descriptive model of decisions under risk, under ambiguity, and from experience.

Erev¹,

Ert

Plonsky³

et al. 2017

Psychological Review

207

258

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Experimental studies of choice behavior document distinct, and sometimes contradictory, deviations from maximization. For example, people tend to overweight rare events in oneshot decisions under risk, and to exhibit the opposite bias when they rely on past experience.The common explanations of these results assume that the contradicting anomalies reflect situation-specific processes that involve the weighting of subjective values and the use of simple heuristics. The current paper analyzes 14 choice anomalies that have been described by different models, including the Allais, St. Petersburg, and Ellsberg paradoxes, and the reflection effect. Next, it uses a choice prediction competition methodology to clarify the interaction between the different anomalies. It focuses on decisions under risk (known payoff distributions) and under ambiguity (unknown probabilities), with and without feedback concerning the outcomes of past choices. The results demonstrate that it is not necessary to assume situation-specific processes. The distinct anomalies can be captured by assuming high sensitivity to the expected return and four additional tendencies: pessimism, bias toward equal weighting, sensitivity to payoff sign, and an effort to minimize the probability of immediate regret. Importantly, feedback increases sensitivity to probability of regret. Simple abstractions of these assumptions, variants of the model Best Estimate And Sampling Tools (BEAST), allow surprisingly accurate ex ante predictions of behavior. Unlike the popular models, BEAST does not assume subjective weighting functions or cognitive shortcuts.Rather, it assumes the use of sampling tools and reliance on small samples, in addition to the estimation of the expected values.

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“…This model has three adjustable parameters and is a special case of the more general configural weight model (Birnbaum, 2004). Like prospect theory, the transfer of attention exchange model emphasizes how choice problems are described and presented to people.…”

Section: The Contestantsmentioning

confidence: 99%

The Priority Heuristic: Making Choices Without Trade-offs

Brandstätter¹,

Gigerenzer²,

Hertwig³

2011

Heuristics

100

182

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Bernoulli's framework of expected utility serves as a model for various psychological processes, including motivation, moral sense, attitudes, and decision making. To account for evidence at variance with expected utility, we generalize the framework of fast and frugal heuristics from inferences to preferences. The priority heuristic predicts (i) Allais' paradox, (ii) risk aversion for gains if probabilities are high, (iii) risk seeking for gains if probabilities are low (lottery tickets), (iv) risk aversion for losses if probabilities are low (buying insurance), (v) risk seeking for losses if probabilities are high, (vi) certainty effect, (vii) possibility effect, and (viii) intransitivities. We test how accurately the heuristic predicts people's choices, compared to previously proposed heuristics and three modifications of expected utility theory: security-potential/aspiration theory, transfer-of-attention-exchange model, and cumulative prospect theory.Conventional wisdom tells us that making decisions becomes difficult whenever multiple priorities, appetites, goals, values, or simply the attributes of the alternative options are in conflict. Should one undergo a medical treatment that has some chance of curing a lifethreatening illness but comes with the risk of debilitating side effects? Should one report a crime committed by a friend? Should one buy an expensive, high-quality camera or an inexpensive, low-quality camera? How do people resolve conflicts, ranging from the prosaic to the profound?The common denominator of many theories of human behavior is the premise that conflicts are mastered by making trade-offs. Since the Enlightenment, it has been believed that weighting and summing are the processes by which such trade-offs can be made in a rational way. Numerous theories of human behavior-including expected value theory, expected utility theory, prospect theory, Benjamin Franklin's moral algebra, theories of moral sense such as utilitarianism and consequentionalism (Gigerenzer, 2004), theories of risk taking (e.g., Wigfield & Eccles, 1992), motivational theories of achievement (Atkinson, 1957) and work behavior (e.g., Vroom, 1964), theories of social learning (Rotter, 1954), theories of attitude formation (e.g., Fishbein & Ajzen, 1975), and theories of health behavior (e.g., Becker, 1974; for a review see Heckhausen, 1991)-rest on these two processes. Take how expected utility theory would account for the choice between two investment plans as an example. The reasons for choosing are often negatively correlated with one another. High returns go with low probabilities, and low returns go with high probabilities. According to a common argument, negative correlations between reasons cause people to experience conflict, leading them to make trade-offs (Shanteau & Thomas, 2000). Europe PMC Funders Author ManuscriptsEurope PMC Funders Author Manuscripts utility, the trade-off between investment plans is performed by weighting the utility of the respective monetary outcomes by their probabilities and...

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New paradoxes of risky decision making.

Cited by 343 publications

References 192 publications

From Uniform Expected Utility to Uniform Rank-Dependent Utility: An experimental study

From Uniform Expected Utility to Uniform Rank-Dependent Utility: An experimental study

From anomalies to forecasts: Toward a descriptive model of decisions under risk, under ambiguity, and from experience.

The Priority Heuristic: Making Choices Without Trade-offs

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