Hyteresis and Uncertainty: The Effect of Uncertainty on Delays to Exit Decisions

The effects of feedback variability and the availability of information on exit decisions in a nonprofitable venture were investigated in a computer simulated marketing scenario. Half of subjects received feedback relatively low in variability and half of subjects received feedback substantially higher in variability. Half of subjects in each variability condition had the opportunity to purchase additional information regarding their investment. Subjects receiving feedback higher in variability delayed exit decisions longer, invested more often, and invested more resources than subjects receiving feedback lower in variability. Subjects with no opportunity to purchase information delayed exit decisions longer, invested more often, and invested more resources than subjects with the opportunity to purchase information. The results are consistent with Dixit's (1992) theory of uncertainty and hysteresis and indicate that an uncertain environment can affect whether a decision maker continues to invest when costs are higher than profits.     

Weighing the past and the future in decision making

Prior irreversible investments of money, time, or effort referred to as sunk costs frequently lead to decisions to continue a chosen course of action despite that this is irrational. With the aim of demonstrating that such escalation of commitment is a special case of a more general phenomenon, two experiments were carried out employing undergraduates as participants. Experiment 1 showed for fictitious personal and business investment scenarios that both prior losses and gains (sunk outcomes) affected choices to continue or discontinue the investment. In Experiment 2 the effect of sunk outcomes was reduced although not eliminated by a monetary bonus that in one condition depended on the future outcomes of the second gamble in two-stage gambles, in another condition on the future returns in personal investment scenarios. In support of a more inclusive theory subsuming escalation of commitment, the decisions were affected by both past and future outcomes and both gains and losses.     

Parental investment in schooling: Evidence from a subsistence farming community in South Africa

Interviews were carried out amongst a cohort of 488 parents who lived as subsistence farmers in a remote and very poorly resourced region of South Africa. The majority of respondents had invested heavily in the education of their children, contrary to what might have been predicted from large family sizes and the economic and ecological pressures that families faced. There was little evidence of child specialization, in which educational investment might have been targeted more to some children than others in a family. However, relatively wide birth spacing may have made the financial and opportunity costs of schooling more manageable. This speculation is given some support by two findings: first, that the number of grades of schooling children complete before leaving increases significantly as birth spacing increases; second, that children who are still in school progress more rapidly as birth interval increases. Greater opportunities for the schooling of sons (made possible by low rates of migrant labour in the community), coupled with high opportunity costs associated with the schooling of daughters, made it likely that sons would be educated to a higher level than daughters. However, there was consistent evidence for gender equity in schooling patterns. This is attributed to the lower risk of financial and opportunity losses that are associated with rearing daughters in this particular community. Birth order exerted only modest effects on the decisions parents made about schooling their offspring. The investment strategy as a whole could be interpreted as “bet‐hedging” under conditions where events outside parental control prevented them from targeting investment to children who could be readily identified as having favourable educational and employment prospects. It is concluded that parents invest in their sons and daughters in a manner that can only be understood when the complexities of their particular social, economic, and ecological contexts are taken into account.     

Choice Models of Deterrence: Another Look

Choice models of deterrence emphasize the importance of including rewards and costs for both crime and noncrime in capturing the process whereby criminal decisions are made. A review of the literature indicates that these models also include probabilities as well as magnitudes for both rewards and costs of crime, but exclude probabilities for law-abiding behavior, treating rewards for noncrime as opportunity costs while eschewing their chance of occurrence. Here we provide experimental data comparing the explanatory power of 2 choice models, one that includes probabilities for rewards and costs for noncrime and another that omits these probabilities altogether. Findings show that the more inclusive model explains approximately twice as much variation in the dependent variable, thereby providing additional support for earlier findings.     

Social Value Orientations and Decisions to Take Proenvironmental Action1

This study assessed whether social value orientations influence decisions to actively support a proposal for a transportation pollution reduction program. Participants with prosocial or proself orientations were given the opportunity to send letters of support or opposition to the program director. Proself participants were more likely to send letters opposing the program, whereas prosocial participants were more likely to send letters of support. Although proself and prosocial participants reported equivalent support for the program and equivalent perceptions of the program's environmental benefits, proself participants reported higher perceptions of personal costs associated with the program. Social value orientations may lead to differences in environmental behaviors, primarily because of differences in perceptions of the personal costs incurred from engaging in these behaviors.     

How Has the Wenchuan Earthquake Influenced People's Intertemporal Choices?1

On May 12, 2008, a major magnitude‐8.0 earthquake shook Wenchuan, China. An opportunity sample of 104 college students was obtained to conduct a within‐subject study investigating the influence of the earthquake on intertemporal choices. The findings indicated that after the earthquake, delayed gains were discounted significantly more steeply than before it, and that delayed losses tended to be discounted more steeply after the earthquake, although this tendency did not reach statistical significance. These results suggest that after the disaster, people might be more shortsighted when they make decisions with intertemporal tradeoffs. Implications of these findings for intervention and management in the aftermath of disasters are discussed.     

Individual differences in need for cognition and decision making in the Iowa Gambling Task

Differences in decision making between individuals differing in Need for Cognition (NFC) are examined using the Iowa Gambling Task (IGT). Previous work using normative one time decisions suggests that individual low in NFC process gains and losses differently than those high in NFC and are more susceptible to decision biases. The IGT is a popular laboratory task that involves making risky decisions from experience involving both gains and losses. In the first experiment, low NFC participants performed significantly worse than the high NFC participants. A second experiment designed to examine the nature of these differences provides evidence that low NFC participants place more importance on gains as opposed to losses when performing the IGT. Results are discussed in light of previous work suggesting that low NFC participants place more importance on losses in mixed outcome decisions.     

The Empathy‐Prospect Model and the Choice to Help1

This paper presents a model of the cognitive processes that precede decisions to help another person. The empathy‐prospect model predicts that potential helpers make decisions in much the same way as decision makers in other contexts do (i.e., they evaluate prospects) and that perceptions of need and the empathic reactions and intentions to help that they generate will be stronger for people observing losses rather than gains. The model also predicts that intentions to help should increase when (a) the predicament is serious, (b) money is not involved, or (c) help entails few costs for the potential altruist. The results from 2 experiments provide clear support for these predictions. The findings suggest that (a) the gains or losses of another person contribute to perceptions of that person's needs and feelings of empathy, (b) empathy is the primary proximal determinant of prosocial motivations, and (c) potential losses that are serious accentuate altruistic reactions.     

Extreme Outcomes Sway Risky Decisions from Experience

Whether buying stocks or playing the slots, people making real‐world risky decisions often rely on their experiences with the risks and rewards. These decisions, however, do not occur in isolation but are embedded in a rich context of other decisions, outcomes, and experiences. In this paper, we systematically evaluate how the local context of other rewarding outcomes alters risk preferences. Through a series of four experiments on decisions from experience, we provide evidence for an extreme‐outcome rule, whereby people overweight the most extreme outcomes (highest and lowest) in a given context. As a result, people should be more risk seeking for gains than losses, even with equally likely outcomes. Across the experiments, the decision context was varied so that the same outcomes served as the high extreme, low extreme, or neither. As predicted, people were more risk seeking for relative gains, but only when the risky option potentially led to the high‐extreme outcome. Similarly, people were more risk averse for relative losses, but only when the risky option potentially led to the low‐extreme outcome. We conclude that in risky decisions from experience, the biggest wins and the biggest losses seem to matter more than they should. Copyright © 2013 John Wiley & Sons, Ltd.     

Evidence for Opportunity Cost Neglect in the Poor

People often neglect opportunity costs: They do not fully take into account forgone alternatives outside of a particular choice set. Several scholars have suggested that poor people should be more likely to spontaneously consider opportunity costs, because budget constraints should lead to an increased focus on trade‐offs. We did not find support for this hypothesis in five high‐powered experiments (total N = 2325). The experiments used different products (both material and experiential) with both high and low prices (from $8.50 to $249.99) and different methods of reminding participants of opportunity costs. High‐income and low‐income participants showed an equally strong decrease in willingness to buy when reminded of opportunity costs, implying that both the rich and the poor neglect opportunity costs. © 2017 The Authors Journal of Behavioral Decision Making Published by John Wiley & Sons Ltd.     

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).     

Decisions and revisions: the affective forecasting of changeable outcomes

People prefer to make changeable decisions rather than unchangeable decisions because they do not realize that they may be more satisfied with the latter. Photography students believed that having the opportunity to change their minds about which prints to keep would not influence their liking of the prints. However, those who had the opportunity to change their minds liked their prints less than those who did not (Study 1). Although the opportunity to change their minds impaired the postdecisional processes that normally promote satisfaction (Study 2a), most participants wanted to have that opportunity (Study 2b). The results demonstrate that errors in affective forecasting can lead people to behave in ways that do not optimize their happiness and well-being.     

The illusion of the framing effect in risky decision making

The present study elucidates that the illusion of framing in risky decisions is induced by the expected losses with the shift of independent or complementary schemata. Throughout three studies, the reversal of risk preferences in the gain and loss frames was confirmed when the expected number of losses was unknown. When it was known, however, the reversal was reduced in Study 2 where the decision makers were informed of all the options in both frames, and eliminated in Study 3 where they elaborated the numbers of lives at stake before making decisions. Further, the complementary schema was more pervasive when the number of expected losses was known, while the independent schema was more common when the number was unknown. These results imply that the illusion of framing is due to the shift of schemata concerning the lives saved and lost. Copyright © 2010 John Wiley & Sons, Ltd.     

Neural correlates of adaptive decision making for risky gains and losses

Do decisions about potential gains and potential losses require different neural structures for advantageous choices? In a lesion study, we used a new measure of adaptive decision making under risk to examine whether damage to neural structures subserving emotion affects an individual's ability to make adaptive decisions differentially for gains and losses. We found that individuals with lesions to the amygdala, an area responsible for processing emotional responses, displayed impaired decision making when considering potential gains, but not when considering potential losses. In contrast, patients with damage to the ventromedial prefrontal cortex, an area responsible for integrating cognitive and emotional information, showed deficits in both domains. We argue that this dissociation provides evidence that adaptive decision making for risks involving potential losses may be more difficult to disrupt than adaptive decision making for risks involving potential gains. This research further demonstrates the role of emotion in decision competence.     

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.     

Bad for me or bad for us? Interpersonal orientations and the impact of losses on unethical behavior

The present research examines the role of allocations of losses versus gains on the emergence of unethical behavior as a function of people's social value orientation. The authors demonstrate that (a) proselfs regard unethical behavior to prevent losses as more justified than prosocials (Study 1) and (b) proselfs engage in more unethical behavior to prevent losses than prosocials (Study 2). These differences are explained by prosocials' greater concern for harm to interdependent others in the domain of losses. A third study further substantiates these findings by revealing that unethical behavior to prevent losses increases among prosocials as harm to others is reduced. In sum, these results reveal that depending on whether people attend only to their self-interest or also consider the outcomes of others, losses either may increase or curtail unethical conduct. Considering social value orientations thus may reconcile conflicting theoretical perspectives on the impact of losses on social decisions.     

Worth the wait: Children trade off delay and reward in self‐ and other‐benefiting decisions

Human prosocial behaviors are supported by early‐emerging psychological processes that detect and fulfill the needs of others. However, little is known about the mechanisms that enable children to deliver benefits to others at costs to the self, which requires weighing other‐regarding and self‐serving preferences. We used an intertemporal choice paradigm to systematically study and compare these behaviors in 5‐year‐old children. Our results show that other‐benefiting and self‐benefiting behavior share a common decision‐making process that integrates delay and reward. Specifically, we found that children sought to minimize delay and maximize reward, and traded off delays against rewards, regardless of whether these rewards were for the children themselves or another child. However, we found that children were more willing to invest their time to benefit themselves than someone else. Together, these findings show that from childhood, other‐ and self‐serving decisions are supported by a general mechanism that flexibly integrates information about the magnitude of rewards, and the opportunity costs of pursuing them. A video abstract of this article can be viewed at: https://youtu.be/r8S0DGe7f8Q     

Good times, bad times: how personal disadvantage moderates the relationship between social dominance and efforts to win

Recent work has linked social dominance orientation (SDO) to ruthless, uncaring individuals who see the world as a competitive jungle. This need to "rule the jungle," then, should become activated when high SDOs are in positions that threaten their chances of victory. In Study 1, the authors manipulated advantage and disadvantage in the form of resources; in an ensuing task, they observed higher levels of greed only among disadvantaged high SDOs. In Study 2, high SDOs with less opportunity to compete relative to others evidenced significantly more extra-effort to win, even though their effort broke the rules. In Study 3, the authors replicated this effect and demonstrated that extra-effort predicted increased beliefs in actual performance, which in turn predicted decisions to argue for a higher score. In sum, the results provide support for the notion of SDO reflecting underlying needs to compete and win at all costs.