The psychology and rationality of decisions from experience

Abstract

Most investigations into how people make risky choices have employed a simple drosophila: monetary gambles involving stated outcomes and probabilities. People are asked to make decisions from description. When people decide whether to back up their computer hard drive, cross a busy street, or go out on a date, however, they do not enjoy the convenience of stated outcomes and probabilities. People make such decisions either in the void of ignorance or in the twilight of their own often limited experience of such real-world options. In the latter case, they make decisions from experience. Recent research has consistently documented that decisions from description and decisions from experience can lead to substantially different choices. Key in this description-experience gap is people's treatment of rare events. In this paper, I briefly review studies that have documented the description-experience gap, offer several explanations for this gap, and discuss to what extent people's decisions from experience are in conflict with benchmarks of rationality.

Neural Correlates of the Divergence of Instrumental Probability Distributions

“…The current experiment differs from such studies in several critical respects: First, in our study, outcome probabilities were acquired through trial-by-trial exposure to action-outcome contingencies, rather than being verbally or graphically instructed-substantial behavioral evidence suggests that decisions based on descriptive information can differ quite dramatically from those based on direct experience (Hertwig, 2012). Second, we used instrumental contingencies, whereas in gambling studies decisions are stimulus based, with stimuli being randomly assigned to particular actions on each trial.…”

Information Acquisition and Decisions Under Risk and Ambiguity

“…This implies that individuals can never learn the objective probabilities and reduce ambiguity completely; however, they are able to decrease the degree of ambiguity and improve the accuracy of their subjectively assigned probabilities by drawing larger samples. The results of existing studies usually show a gap between decisions from description and those from experience (see, e.g., Rakow & Newell, 2010;Hau et al, 2010;Hertwig, 2012), which can be explained in part by sampling errors (see, e.g., Hau et al, 2010). These errors occur because the accuracy of probabilities is lower for smaller sample sizes, as described above.…”

How Representations of Knowledge Shape Actions

“…Hertwig andPleskac ( 2008 , 2010 ) proposed one possible advantage that rests on the notion of amplifi cation. Unlike Real ( 1992 ), however, they argued that amplifi cation proffers a cognitive rather than an evolutionary benefi t. Through mathematical analysis and computer simulation, Hertwig and Pleskac ( 2010 ) showed that small samples amplify the difference between the options' average rewards.…”

“…Acknowledgments This text is based largely on Hertwig andHertwig ( 2012 ). We thank Elsevier, Sage, and Springer for granting the permission rights, and the Swiss National Science Foundation for a grant to the fi rst author (100014-126558).…”