Remembering the best and worst of times: Memories for extreme outcomes bias risky decisions

When making decisions on the basis of past experiences, people must rely on their memories. Human memory has many well-known biases, including the tendency to better remember highly salient events. We propose an extreme-outcome rule, whereby this memory bias leads people to overweight the largest gains and largest losses, leading to more risk seeking for relative gains than for relative losses. To test this rule, in two experiments, people repeatedly chose between fixed and risky options, where the risky option led equiprobably to more or less than did the fixed option. As was predicted, people were more risk seeking for relative gains than for relative losses. In subsequent memory tests, people tended to recall the extreme outcome first and also judged the extreme outcome as having occurred more frequently. Across individuals, risk preferences in the risky-choice task correlated with these memory biases. This extreme-outcome rule presents a novel mechanism through which memory influences decision making.     

Embracing Chance Tactically: A Different Perspective on Risk Taking

Although they value certainty, people are willing to take risks to avoid losses. Consequently, they are risk‐seeking in the domain of losses but risk‐avoidant in the domain of gains. This behavior, frequently demonstrated in framing experiments, is traditionally explained in terms of prospect theory. We suggest a different account whereby involving chance in one's decisions may serve a strategic impression‐formation function. In the domain of losses actors may embrace chance to distance themselves from the outcomes and deflect possible blame. Given potential gains, however, actors may avoid uncertainty to enhance their association with valued outcomes. We test this idea by manipulating the level of actors' personal responsibility for the decision outcomes. The results of four studies consistently showed that when personal responsibility is high, the original framing effect is replicated (i.e., greater risk‐taking when choices are framed in terms of losses rather than gains). However, when because of assigned role or decision circumstances, actors experience low personal responsibility for the outcomes, and the classic framing effect is eliminated. Copyright © 2016 John Wiley & Sons, Ltd.     

Framing prisoners and chickens: Valence effects in the prisoner’s dilemma and the chicken game

In an experimental study, we investigated how decisions in social dilemmas are affected by the valence of outcomes that are at stake. Prospect theory states that individuals are risk-averse when outcomes are framed as gains, and risk-seeking when outcomes are framed as losses. On the basis of this framework, previous research on social dilemmas has addressed the question of whether people are more cooperative in the negative domain than in the positive domain, but this research has led to inconsistent results. A possible explanation for this is that in many social dilemmas it is unclear whether cooperation or defection is the risky choice. In the current paper, we compare the well-studied prisoner’s dilemma with the less studied chicken game. Whereas in the prisoner’s dilemma it is unclear what constitutes the risky option, in the chicken game the risky option is quite clear. Consistent with predictions, we found in the chicken game more defection in the loss frame than in the gain frame, but no difference between the gain and loss frame in the prisoner’s dilemma. Moreover, choices were predicted by risk attitude in the chicken game, but not in the prisoner’s dilemma.     

Better Safe than Sorry: Risking Irresponsibility by Seeking Uncertainty

Research findings differ as to whether choosing a risky option is an efficient strategy for decision makers seeking to avoid responsibility for potential failures. A risky choice may leave the final outcome to chance factors, but the decision maker can still be held responsible for choosing risk. Further, it is unclear whether a risky choice is a responsible choice. The present article investigates the putative relationship between risk‐taking and responsibility by drawing a distinction between being responsible for the outcome (R1) versus acting responsibly (R2). Four experiments were performed, in which participants were presented with scenarios describing decision makers facing a choice between a risky (uncertain) option and a riskless (certain) option, framed in terms of losses or equivalent gains. The results showed that decision makers who chose the risky alternative were judged to have acted in a less responsible manner (R2), while still being held equally responsible for the outcome (R1), unless they were ignorant of the risks involved. Choosing risk did not absolve decision makers from blame, despite being less causal and less in control than those who chose the riskless option. Risky decision makers were also judged to be more personally involved. The dissociation between R1 and R2 ratings confirms earlier findings and serves to clarify an alleged relationship between risky choices and responsibility aversion. Framing effects for own choices were found in both scenarios. In contrast, responsibility ratings were only slightly affected by frame. Copyright © 2017 John Wiley & Sons, Ltd.     

Influencing Risk Preference in Decision Making: The Effects of Framing and Salience

Prospect theory predicts that people tend to prefer the sure option when choosing between two alternative courses of action framed in terms of gains and prefer the risky option when choosing between two alternatives framed as losses. Related research investigated the impact of emphasizing the probability of the positive outcome of a risky option versus emphasizing the probability of the negative outcome on preference. Most of these studies on the effects of "outcome salience" related their findings to prospect theory′s framing effect. It will be argued that most of these studies inaccurately applied prospect theory to explain the obtained effects and that these might be better understood in terms of salience. In four experiments we test the predictions that (1) choosing between two options in a gain problem will lead to decreased risk preference as compared to loss problems and (2) emphasizing the probability of positive outcomes of a risky option leads to increased preference for this option compared to emphasizing the probability of negative outcomes. Results confirm the impact of both prospect framing and outcome salience and indicate that these effects should be understood in terms of distinct, independent processes.     

Double Reference Points: the Effects of Social and Financial Reference Points on Decisions Under Risk

The existing literature is inconsistent about how social comparison affects risk attitudes. We propose a framework where the total utility is composed of the social and financial utilities. The financial utility is consistent with prospect theory (i.e., an S‐shaped utility function with a financial reference point), whereas the social utility is affected by both social and financial reference points. Therefore, social risk attitudes are determined by interaction between gains/losses in both social and financial contexts. On the basis of safety‐first principle, we propose that when experiencing financial gains, individuals tend to seek upside potential and take social risks (i.e., a convex social utility function). In contrast, when facing financial losses, people would be more risk seeking in social gains but more risk averse in social losses to maximize security (i.e., an inverse S‐shaped utility function). We also propose that the relative importance of financial and social utilities depends on the saliency of the reference points and size of stakes. Studies 1 and 2 showed that individuals were risk seeking in both social gains and losses with social reference points alone. Studies 3 and 4 demonstrated that when both financial and social reference points were salient, participants were risk averse in both social gains and losses when facing financial gains, but risk seeking in social gains and risk averse in social losses when facing financial losses. The hypotheses derived from the theoretical framework were in general supported by our experiments. Copyright © 2015 John Wiley & Sons, Ltd.     

Uncertainty Avoidance Influences Choices for Potential Gains but not Losses

Uncertainty of outcomes is a primary dimension underlying human judgment and decision making, and is a defining feature of risk. Even though uncertainty almost always exists in decision making contexts, individuals and cultures vary in their preference for avoiding uncertainty. This study examines how uncertainty avoidance influences judgments involving uncertain and risky alternatives. Participants were presented with problems that involve potential gains or losses and contain options reflecting uncertain or certain outcomes. Greater uncertainty avoidance predicted choices for uncertain outcomes that involved gains, which tend to promote risk aversion, but not for uncertain outcomes that led to losses, which tend to promote risk seeking. These results demonstrate that culturally-relevant dispositions such as uncertain avoidance can have complex effects on judgment.     

Eyes on the Prize? Evidence of Diminishing Attention to Experienced and Foregone Outcomes in Repeated Experiential Choice

Recently, there has been increased interest in decisions‐from‐experience (where decision makers learn from observing the outcomes of previous choices), which provide valuable insights into the learning and preference construction processes underlying many daily decisions. Several process models have been developed to capture these processes, and while such models often fit the data well, many assume that the decision maker is a vigilant observer, processing each outcome. In two studies, we provide a critical test of this assumption using eye tracking to record directed visual attention when participants choose repeatedly among two options, each time being shown the outcome for their chosen option and for the foregone option. Consistently, we find that the vigilance assumption is not supported, with decision makers often not attending to outcome information. Moreover, (in)attention to outcomes is predictable, with vigilance decreasing as more choices are made, and being greater for obtained than for foregone outcomes, and when options deliver only gains as opposed to losses or a mixture of gains and losses. Furthermore, we find that this variation in attentional allocation plays a central role in the apparent indecisiveness (inconsistency) in choice, with increased attention to foregone outcomes predicting switches to that option on the next choice. Together, these findings highlight the value of eye tracking in investigations of decisions‐from‐experience, providing novel insight into the cognitive processes underlying them. Copyright © 2015 John Wiley & Sons, Ltd.     

When mixed options are preferred in multiple‐trial decisions

We report three studies showing that in prospective multiple‐trial decisions people often select a mix of sure and risky options over pure bundles of either option. Such a preference is not ‘rational’ because a mixed option cannot be the EV‐maximizing choice. Experiment 1 confirmed a mixed‐option preference for gains but not for losses. Showing a graph of the multiple‐trial outcome distribution reduced but did not eliminate this effect, suggesting that it is not due purely to a failure to aggregate correctly over the multiple trials. Experiment 2 replicated the mixed option preference using a wider range of problems. Experiment 3 compared choices in the trinary choice conditions used in Experiments 1 and 2 with binary choices between pairs of the multiple‐trial sure, mixed, and risky options. In the binary choice condition the mixed option was no longer the modal choice, suggesting that the strong mixed option preference found in the trinary choice conditions is mainly due to a compromise effect. However, the binary choice probabilities did show violations of strong stochastic transitivity in a pattern that suggested a slight bias toward the mixed option. Copyright © 2006 John Wiley & Sons, Ltd.     

The Effect of Multiple Reference Points and Prior Gains and Losses on Managers′ Risky Decision Making

This study examines the impact of two contextual features of decision settings on managers′ risky behavior. Considerable research indicates that decision makers exhibit risk avoiding or risk taking behavior depending upon whether options are viewed as gains or losses with respect to a given reference point. We argue in this paper that multiple points of reference are important determinants of risky behavior in many decision contexts, and that research should explicitly consider their effect to fully understand and predict risky behavior. The analysis of contextual features is extended to consider the impact of prior gains and losses in the second part of the paper. Seventy-two professional corporate managers participated in two experiments that involved a corporate investment decision setting. The setting exemplifies a context that has both multiple important points of reference and prior gains and losses. The data indicated that the presence of multiple relevant reference points results in a complex pattern of risky behavior, where managers′ decisions to accept or avoid risk were affected by the relative positions of risky alternatives with respect to two important points of reference. In particular, a mixture of risk taking and risk avoiding occurred for options between the relevant reference points. The managers were also found to be more willing to accept risk after experiencing a prior gain as opposed to a prior loss. These findings point to the importance of considering such task characteristics when attempting to predict and understand risky behavior across a variety of task contexts.     

Self‐Control Moderates Decision‐Making Behavior When Minimizing Losses versus Maximizing Gains

We examined (1) whether people would be more responsive to the delayed consequences of their decisions when attempting to minimize losses than when attempting to maximize gains in a history‐dependent decision‐making task and (2) how trait self‐control would moderate such an effect. In two experiments, participants performed a dynamic decision‐making task where they chose one of two options on each trial. The increasing option always gave a smaller immediate reward but caused future rewards for both options to increase. The decreasing option always gave a larger immediate reward but caused future rewards for both options to decrease. In Experiment 1 where the two options had equivalent expected value in the long run, participants were more prone to select the increasing option, which yielded larger benefits on future trials, in the loss‐minimization condition than in the gain‐maximization condition. Trait self‐control moderated the effect of losses by enhancing the effect for low self‐control participants while attenuating it for high self‐control participants. In Experiment 2 where selecting the increasing option was suboptimal, low self‐control participants still attempted to reduce losses on future trials by selecting the increasing option more often than high self‐control participants. These results suggest that decision makers value delayed consequences of their actions more in a losses domain relative to a gains domain and low self‐control individuals are more susceptible to such an effect. Copyright © 2014 John Wiley & Sons, Ltd.     

Extreme malleability of preferences: Absolute preference sign changes under uncertainty

Malleability of preferences is a central tenet of behavioral decision theory. How malleable preferences really are, however, is a topic of debate. Do preference reversals imply preference construction? We argue that to claim preferences are construed, a demonstration of more extreme preference malleability than simple preference reversals is required: absolute preference sign changes within participants. If respondents value a prospect positively in 1 condition but negatively in a different condition, preferences cannot be considered stable. Such absolute preference sign changes are possible under uncertainty. In 2 incentive‐compatible experiments, we found participants were willing to pay to take part in a gamble and also demanded to be compensated to take part in a subsequent gamble with identical outcomes and probabilities. Such absolute preference sign changes within participants led to simultaneous risk aversion and risk seeking for the same risky prospect, suggesting that, at least in the domain of risky decisions, consumers' preferences are indeed malleable and construed.     

DECISION AFFECT THEORY:

Abstract— How do people feel about the outcomes of risky options? Results from two experiments demonstrate that the emotional reaction to a monetary outcome is nor a simple function of the utility of that outcome Emotional responses also depend on probabilities and unobtained outcomes Unexpected outcomes have greater emotional impact than expected outcomes Furthermore any given outcome is lets pleasant if an unobtained outcome is better We propose an account of emotional experiences associated with outcomes of decisions called decision affect theory. It incorporates utilities expectations and counterfactual companions into hedonic responses. Finally, we show that choices between risky options can be described as the maximization of expected emotional experiences as predicted by decision affect theory That is people choose the risky option for which they expect to feel better on average.     

Good fortune but bad luck? Predictable versus unpredictable gains and losses in risky choice

This study examines the effects of two different types of good and bad experiences on risk‐taking preferences: fortune and luck. We define fortune as a relatively stable positive or negative context within which choices are made and luck as a more unpredictable series of better or worse outcomes. With the use of a lottery‐based paradigm, fortune was operationalized as a preponderance of all‐gain or all‐loss two‐outcome option pairs within a larger set of mixed‐outcome control lotteries. Luck was operationalized as the experienced frequency of better versus worse outcomes when playing the lotteries. We predicted that fortune and luck would lead to opposite risk‐taking tendencies within control lotteries. An assimilation effect of fortune was predicted, with risk‐averse preferences for control lotteries when surrounded by good fortune and risk‐seeking preferences when surrounded by bad fortune. In contrast, we expected that high rates of success with good luck would lead to risk‐seeking preferences, whereas low rates of success with bad luck would yield risk‐averse preferences. Our predictions for fortune were confirmed; however, there was no evidence of any effect on risk taking based on experiencing good versus bad luck. Moreover, we observed a striking disconnect between impressions of the experience and risk‐taking behavior. Both identification and attributions of luck and fortune were highly correlated with the number of gain outcomes that participants experienced but were uncorrelated with risk taking. We review these surprising findings considering several prominent theories of risk‐taking behavior, particularly drawing attention to the differential roles of predecisional and postdecisional information in choice.     

Good or Bad,We Want it Now: Fixed‐cost Present Bias for Gains and Losses Explains Magnitude Asymmetries in Intertemporal Choice

Intertemporal tradeoffs are ubiquitous in decision making, yet preferences for current versus future losses are rarely explored in empirical research. Whereas rational‐economic theory posits that neither outcome sign (gains vs. losses) nor outcome magnitude (small vs. large) should affect delay discount rates, both do, and moreover, they interact: in three studies, we show that whereas large gains are discounted less than small gains, large losses are discounted more than small losses. This interaction can be understood through a reconceptualization of fixed‐cost present bias, which has traditionally described a psychological preference for immediate rewards. First, our results establish present bias for losses—a psychological preference to have losses over with now. Present bias thus predicts increased discounting of future gains but decreased (or even negative) discounting of future losses. Second, because present bias preferences do not scale with the magnitude of possible gains or losses, they play a larger role, relative to other motivations for discounting, for small magnitude intertemporal decisions than for large magnitude intertemporal decisions. Present bias thus predicts less discounting of large gains than small gains but more discounting of large losses than small losses. The present research is the first to demonstrate that the effect of outcome magnitude on discount rates may be opposite for gains and losses and also the first to offer a theory (an extension of present bias) and process data to explain this interaction. The results suggest that policy efforts to encourage future‐oriented choices should frame outcomes as large gains or small losses. Copyright © 2012 John Wiley & Sons, Ltd.     

任务框架、损益值大小对自恋者风险偏好的影响

以234名大学生为被试,探讨了任务框架、损益值大小对显性/隐性自恋者风险偏好的影响。结果表明：(1)框架效应较稳定的出现在中等风险水平情境下,且在大损益值条件下更易出现。(2)在获益框架下,被试为小金额决策更冒险,在损失框架下,则为大金额决策更冒险。(3)在损失框架下,高显性自恋者比低显性自恋者更为冒险,在获益框架下,高隐性自恋者比低隐性自恋者更为保守;高隐性自恋者的风险偏好受到任务框架和损益值大小的共同影响。