Interoceptive ability predicts aversion to losses

Emotions have been proposed to inform risky decision-making through the influence of affective physiological responses on subjective value. The ability to perceive internal body states, or “interoception” may influence this relationship. Here, we examined whether interoception predicts participants' degree of loss aversion, which has been previously linked to choice-related arousal responses. Participants performed both a heartbeat-detection task indexing interoception and a risky monetary decision-making task, from which loss aversion, risk attitudes and choice consistency were parametrically measured. Interoceptive ability correlated selectively with loss aversion and was unrelated to the other value parameters. This finding suggests that specific and separable component processes underlying valuation are shaped not only by our physiological responses, as shown in previous findings, but also by our interoceptive access to such signals.     

Power and loss aversion

Four experiments tested the prediction that power reduces loss aversion by increasing the anticipated value of gains and shrinking the negative anticipated value of losses. Experiment 1 provided initial support for the prediction that those in power are less loss averse by replicating a classic paradigm of loss aversion in riskless choice and demonstrating moderation by power. Experiments 2 and 3 expanded on this finding by breaking apart the components of loss aversion to determine how power may reduce it: via gains, losses, or both. Across two scenarios and two different measures of anticipated value, power reduced the anticipated threat associated with a loss. However, the prediction that power increases the anticipated value of gains was not supported. Finally, Experiment 4 replicated the results of Experiments 2 and 3 in the context of a choice with real consequences for the participants. Implications of these findings are discussed.     

The behavioural components of risk aversion

There have been few theoretical investigations of risk attitude within Cumulative Prospect Theory (CPT). Unlike expected utility theory, in CPT risk attitude is affected by loss aversion and decision weight distortions as well as utility curvature for both gains and losses. We introduce two variants of the risk premium—the total risk premium relative to expected value, and the behavioural risk premium relative to the imputed behavioural expected value. Approximate solutions for each using Pratt's [(1964). Risk aversion in the small and in the large. Econometrica, 32, 122-136] methodology show that the CPT risk premium is composed of two components: the first, analogous to the Pratt-Arrow coefficient of risk aversion, governs the contribution of the curvature of the value function to risk aversion; the second governs the first-order contribution of loss aversion. Both of these terms are made more complex by the introduction of decision weights. We analyse the contribution of each component and provide sufficient conditions to ensure risk aversion in CPT.     

Risk aversion in information seeking

The information gain model argues that participants select alternatives with a larger expected value of information gain. The present study investigated risk aversion in information seeking to examine whether the expected value always determines information-seeking behaviour. For this investigation, we used a scale method selection task in which participants were required to select one of two scales for weighing coins in order to find an underweight coin. Two experiments showed that participants more frequently selected the alternative that provided information gain without risk, although its expected information gain was smaller. This finding indicates the presence of risk aversion in information seeking, suggesting that information-seeking behaviour is affected by risk associated with obtaining information gain.     

Delay discounting: Interactions between personality and cognitive ability

Delay discounting describes the extent to which the value of a reward decreases as the delay to obtaining that reward increases. Lower discounting rates predict better outcomes in social, academic, and health domains. The current study investigates how personality and cognitive ability interact to predict individual differences in delay discounting. Extraversion was found to predict higher discounting rates at the low end of the cognitive distribution, while emotional stability was found to predict lower discounting rates at the high end of the cognitive distribution. These findings support recent models of discounting behavior and suggest that personality and cognitive ability interact in shaping decision making.     

Policy bundling to overcome loss aversion: A method for improving legislative outcomes

Policies that would create net benefits for society that contain salient costs frequently lack enough support for enactment because losses loom larger than gains. To address this consequence of loss aversion, we propose a policy-bundling technique in which related bills involving both losses and gains are combined to offset separate bills’ costs while preserving their net benefits. We argue this method can transform unpopular individual pieces of legislation, which would lack the support for implementation, into more popular policies. Study 1 confirms that bundling increases support for bills with costs and benefits and that bundled legislation is valued more than the sum of its parts. Study 2 shows this finding stems from a diminished focus on losses and heightened focus on gains. Study 3 extends our findings to policies involving costs and benefits of the same type (e.g., lives) generated by different sources (e.g., food vs. fire safety).     

Loss aversion in the eye and in the heart: The autonomic nervous system's responses to losses

The common view in psychology and neuroscience is that losses loom larger than gains, leading to a negativity bias in behavioral responses and Autonomic Nervous System (ANS) activation. However, evidence has accumulated that in decisions under risk and uncertainty individuals often impart similar weights to negative and positive outcomes. We examine the role of the ANS in decisions under uncertainty, and its consistency with the behavioral responses. In three studies, we show that losses lead to heightened autonomic responses, compared to equivalent gains (as indicated by pupil dilation and increased heart rate) even in situations where the average decision maker exhibits no loss aversion. Moreover, in the studied tasks autonomic responses were not associated with risk taking propensities. These results are interpreted by the hypothesis that losses signal the subjective importance of global outcome patterns. Copyright © 2010 John Wiley & Sons, Ltd.     

The effects of endowment on the demand for probabilistic information

Research shows that individuals are ambiguity averse: they choose unambiguous over equivalent ambiguous prospects and price them higher (either as buyers or sellers). Moreover, it is often assumed that ambiguity averse individuals are willing to pay an ambiguity premium for information that reduces ambiguity [Camerer, C. F., & Weber, M. (1992). Recent developments in modeling preferences: Uncertainty and ambiguity. Journal of Risk and Uncertainty, 5(4), 325–370]. However, when people are asked to exchange an ambiguous alternative in their possession for an equivalent unambiguous one, they prefer to retain the former [Roca, M., Hogarth, R. M., & Maule, A. J. (2006). Ambiguity seeking as a result of the status quo bias. Journal of Risk and Uncertainty, 32(3), 175–194]. We present three experiments investigating the economic effects of endowment on attitudes towards ambiguity and the ambiguity premium. The experiments, based on a [Becker, G., DeGroot, M., & Marschak, J. (1964). Measuring utility by a single-response sequential method. Science, 9, 3] procedure, show that the value attributed to ambiguity reducing information is substantially affected by the status quo of the individual.     

The relationship between information processing style and information seeking,and its moderation by affect and perceived usefulness: Analysis vs. procrastination

We examined the relationship between information processing style and information seeking, and its moderation by anxiety and information utility. Information about Salmonella, a potentially commonplace disease, was presented to 2960 adults. Two types of information processing were examined: preferences for analytical or heuristic processing, and preferences for immediate or delayed processing. Information seeking was captured by measuring the number of additional pieces of information sought by participants. Preferences for analytical information processing were associated positively and directly with information seeking. Heuristic information processing was associated negatively and directly with information seeking. The positive relationship between preferences for delayed decision making and information seeking was moderated by anxiety and by information utility. Anxiety reduced the tendency to seek additional information. Information utility increased the likelihood of information seeking. The findings indicate that low levels of anxiety could prompt information seeking. However, information seeking occurred even when information was perceived as useful and sufficient, suggesting that it can be a form of procrastination rather than a useful contribution to effective decision making.     

The impact of risk and affect on information search efficiency

We develop and test a theoretical framework of the joint influence of risk and affect on information search efficiency. Our framework proposes that information search is less efficient (i.e., less strategic) when risk is high, versus low. It further proposes that the influences of positive and negative affect on search efficiency are asymmetric and depend on the level of risk. Negative affect improves search efficiency when risk is high, but not when it is low. Positive affect degrades search efficiency when risk is low, but not when it is high. We find results consistent with our framework in two experiments. We discuss implications for affect research and for decision making in risky contexts, including financial statement auditing.     

Bringing (Contingent) Loss Aversion Down to Earth — A Comment on Gal & Rucker's Rejection of “Losses Loom Larger Than Gains”

Although we disagree with some of Gal and Rucker's (2018 – this issue) specific evidence and with their overstated conclusion regarding loss aversion, their overarching message makes a worthwhile contribution. In particular, loss aversion is less robust and universal than has been assumed while its most prominent empirical support — the endowment effect and the status quo bias — is susceptible to multiple alternative explanations. Instead of accepting loss aversion as true unless proven otherwise, we should treat it like other decision properties and psychological accounts that are contingent on various moderators and call for an analysis of psychological mechanisms. In this commentary, we suggest that gatekeepers, such as reviewers, tend to favor loss aversion and other widely accepted tendencies, while demanding a much higher support‐threshold for alternative or newer accounts. Although building on prior theories and concepts is of course important, the bias in favor of incumbent assumptions can impede scientific progress, bar new ideas from the literature, and reinforce well‐established but contingent notions that may apply under some conditions but not others.     

When fairness neither satisfies nor motivates: The role of risk aversion and uncertainty reduction in attenuating and reversing the fair process effect

It is widely acknowledged that procedural justice has many positive effects. However, some evidence suggests that procedural justice may not always have positive effects and may even have negative effects. We present three studies that vary in method and participant populations, including an archival study, a field study, and an experiment, using data provided by the general American population, Indian software engineers, and undergraduate students in the US. We demonstrate that key work-related variables such as people’s job satisfaction and performance depend on procedural justice, perceived uncertainty, and risk aversion such that risk seeking people react less positively and at times negatively to the same fair procedures that appeal to risk averse people. Our results suggest that one possible reason for these effects is that being treated fairly reduces people’s perception of uncertainty in the environment and while risk averse people find low uncertainty desirable and react positively to it, risk seeking people do not. We discuss the implications of our findings for theories of procedural justice including the uncertainty management model of fairness, the fair process effect, and fairness heuristic theory.     

Developmental changes in decision making under risk: The role of executive functions and reasoning abilities in 8- to 19-year-old decision makers

Previous studies have shown that children and adolescents often tend toward risky decisions despite explicit knowledge about the potential negative consequences. This phenomenon has been suggested to be associated with the immaturity of brain areas involved in cognitive control functions. Particularly, “frontal lobe functions,” such as executive functions and reasoning, mature until young adulthood and are thought to be involved in age-related changes in decision making under explicit risk conditions. We investigated 112 participants, aged 8–19 years, with a frequently used task assessing decisions under risk, the Game of Dice Task (GDT). Additionally, we administered the Modified Card Sorting Test assessing executive functioning (categorization, cognitive flexibility, and strategy maintenance) as well as the Ravens Progressive Matrices assessing reasoning. The results showed that risk taking in the GDT decreased with increasing age and this effect was not moderated by reasoning but by executive functions: Particularly, young persons with weak executive functioning showed very risky decision making. Thus, the individual maturation of executive functions, associated with areas in the prefrontal cortex, seems to be an important factor in young peoples’ behavior in risky decision-making situations.     

Selective exposure and decision framing: The impact of gain and loss framing on confirmatory information search after decisions

When people make decisions, they often prefer to receive information that supports rather than conflicts with their decision. To date, this effect has mainly been investigated in the context of decisions about gains, whereas decisions about losses have received less attention. Based on Prospect Theory, we expected information search to be differently affected by whether people previously have decided about gains or losses. Three studies have revealed that selectivity of information search is stronger after gain-framed rather than after loss-framed decision problems. An investigation of the underlying psychological processes revealed that gain decisions are made with increased subjective decision certainty (i.e. they are easier and less effortful to make), which in turn systematically increases confirmatory information search.     

The process of selective exposure: Why confirmatory information search weakens over time

The present research investigated whether the tendency to prefer decision-consistent to decision-inconsistent information after making a preliminary choice would vary during the sequential process of searching for additional pieces of decision-relevant information. Specifically, it was tested whether decision makers would be more confirmatory in their information evaluation and search at the commencement rather than end of an information search process. In fact, five studies revealed that participants exhibited stronger confirmatory tendencies in both information evaluation (Studies 2 and 5) and search (Studies 1, 3, and 4) immediately after making a preliminary decision compared to during the later stages of an information search process. With regard to the underlying mechanism, results further revealed that individuals appear to be more motivated to detect the best decision alternative at the beginning (as opposed to the end) of an information search process, which leads to increases in confirmatory information processing during these stages.     

The Aggregated Extremes Effect: Not All Routes to “Balanced” Bundles are Equally Appealing

Prior research establishes that consumers are averse to extreme options, but what does a “moderate” option look like in the context of choices among bundles of items, such as investment portfolios or product assortment packs? We propose that for bundles, two paths to creating risk and reward balance exist: a “bundle‐of‐pure‐moderation” with all moderate‐risk–moderate‐reward (moderate RR) components and a “bundle‐of‐extremes,” composed of equal numbers of extreme high‐risk–high‐reward (high RR) and low‐risk–low‐reward (low RR) components. We show that consumers have stronger preference for the balanced bundle when composed of a bundle‐of‐extremes rather than a bundle‐of‐pure‐moderation, even when equated on expected value, a phenomenon we term “the aggregated extremes effect.” This effect occurs across different choice set configurations and across multiple domains. Additionally, this effect is eliminated among consumers who view the high RR and low RR components as incompatible, as this undermines the perceived attractiveness of the bundle‐of‐extremes. Finally, this effect is also eliminated by exposing consumers to a depiction of potential outcomes, such that consumers can better perceive the risk reduction upside of a bundle‐of‐pure‐moderation.