Abstract:Decision-makers often must decide whether to invest in prospects to reduce risk. Existing models assume that decision-makers consider the absolute improvement in probabilistic chances (e.g., increasing a 10% chance of winning $10 to a 20% chance is roughly similar to increasing an 80% chance of winning $10 to a 90% chance). We present evidence that people instead behave as if they consider the relative reduction in bad outcomes (increasing a 10% chance to a 20% chance eliminates 1/9th of all bad outcomes, whil… Show more
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