Information overload or search-amplified risk? Set size and order effects on decisions from experience

How do changes in choice-set size influence information search and subsequent decisions? Moreover, does information overload influence information processing with larger choice sets? We investigated these questions by letting people freely explore sets of gambles before choosing one of them, with the choice sets either increasing or decreasing in number for each participant (from two to 32 gambles). Set size influenced information search, with participants taking more samples overall, but sampling a smaller proportion of gambles and taking fewer samples per gamble, when set sizes were larger. The order of choice sets also influenced search, with participants sampling from more gambles and taking more samples overall if they started with smaller as opposed to larger choice sets. Inconsistent with information overload, information processing appeared consistent across set sizes and choice order conditions, reliably favoring gambles with higher sample means. Despite the lack of evidence for information overload, changes in information search did lead to systematic changes in choice: People who started with smaller choice sets were more likely to choose gambles with the highest expected values, but only for small set sizes. For large set sizes, the increase in total samples increased the likelihood of encountering rare events at the same time that the reduction in samples per gamble amplified the effect of these rare events when they occurred—what we call search-amplified risk. This led to riskier choices for individuals whose choices most closely followed the sample mean.     

The effect of time pressure on risky choice behavior

Thirty six subjects chose individually between pairs of gambles under three time pressure conditions: High (8 seconds), Medium (16 seconds) and Low (32 seconds). The gambles in each pair were equated for expected value but differed in variance, amounts to win and lose and their respective probabilities. Information about each dimension could be obtained by the subject sequentially according to his preference.The results show that subjects are less risky under High as compared to Medium and Low time pressure, risk taking being measured by choices of gambles with lower variance or lower amounts to lose and win. Subjects tended to spend more time observing the negative dimensions (amount to lose and probability of losing), whereas under low time pressure they preffered observing their positive counterparts. Information preference was found to be related to choices.Filtration of information and acceleration of its processing appear to be the strategies of coping with time pressure.     

An eye‐tracking study on information processing in risky decisions: Evidence for compensatory strategies based on automatic processes

Many everyday decisions have to be made under risk and can be interpreted as choices between gambles with different outcomes that are realized with specific probabilities. The underlying cognitive processes were investigated by testing six sets of hypotheses concerning choices, decision times, and information search derived from cumulative prospect theory, decision field theory, priority heuristic and parallel constraint satisfaction models. Our participants completed 40 decision tasks of two gambles with two non‐negative outcomes each. Information search was recorded using eye‐tracking technology. Results for choices, decision time, the amount of information searched for, fixation durations, the direction of the information search, and the distribution of fixations conflict with the prediction of the non‐compensatory priority heuristic and indicate that individuals use compensatory strategies. Choice proportions are well in line with the predictions of cumulative prospect theory. Process measures indicate that individuals thereby do not rely on deliberate calculations of weighted sums. Information integration processes seem to be better explained by models that partially rely on automatic processes such as decision field theory or parallel constraint satisfaction models. Copyright © 2010 John Wiley & Sons, Ltd.     

Sizing up information distortion: quantifying its effect on the subjective values of choice options

When choosing between options, people often distort new information in a direction that favors their developing preference. Such information distortion is widespread and robust, but less is known about the magnitude of its effects. In particular, research has not quantified the effects of distortion relative to the values of the choice options. In two experiments, we manipulated participants’ initial preferences in choices between risky three-outcome monetary gambles (win, lose, or neither) by varying the order of five information items (e.g., amount to win, chance of losing). In Experiment 1 (N = 397), the effect of initial information on gambles’ certainty equivalents (subjective values) was mediated by the distortion of later information. The indirect effect on the difference between gambles’ certainty equivalents averaged 27% of the gambles’ mean expected value. In Experiment 2 (N = 791), we increased the difference between gambles on a later information item to overcome the effect of initial information on participants’ choices. The required change averaged 31% of the gambles’ mean expected value. We conclude that the effects of information distortion can be substantial.     

An eye fixation analysis of choice and judgment with multiattribute stimuli

The present paper examined the selection of processing heuristics for choice and judgment across a range of stimuli. Eye fixations were monitored while six subjects made choices or judgments of pairs of gambles, vacations, or gifts. Each stimulus was represented by three attributes that varied in the amount of dimensional interdependency. The two heuristics of interest were dimensional and holistic evaluation. Each manifested a characteristic pattern of eye fixations. Dimensional evaluation required alternating fixations from a single attribute of one stimulus to the same attribute of the other stimulus. Holistic evaluation was characterized by transitions from attribute to attribute within a single stimulus. The results demonstrated that when the stimulus attributes were either interdependent (gambles) or dissimilar (gifts), the processing heuristic was determined by stimulus characteristics. When the stimulus dimensions were neither interdependent nor dissimilar (vacations), the selection of a processing strategy was determined by the prescribed task. This study suggests that any global theory of choice or judgment must be validated over a wide range of stimuli.     

Individual differences in skewed financial risk-taking across the adult life span

Older adults are disproportionately targeted by fraud schemes that advertise unlikely but large returns (positively skewed risks). We examined adult age differences in choice and neural activity as individuals considered risky gambles. Gambles were symmetric (50% chance of modest win or loss), positively skewed (25% chance of large gain), or negatively skewed (25% chance of large loss). The willingness to accept positively skewed relative to symmetric gambles increased with age, and this effect replicated in an independent behavioral study. Whole-brain functional magnetic resonance imaging analyses comparing positively (vs. negatively) skewed trials revealed that relative to younger adults, older adults showed increased anticipatory activity for negatively skewed gambles but reduced activity for positively skewed gambles in the anterior cingulate and lateral prefrontal regions. Individuals who were more biased toward positively skewed gambles showed increased activity in a network of regions including the nucleus accumbens. These results reveal age biases toward positively skewed gambles and age differences in corticostriatal regions during skewed risk-taking, and have implications for identifying financial decision biases across adulthood.     

Numeracy as a Predictor of Adaptive Risky Decision Making

Numeracy or one's ability to appropriately process and use numerical information has been shown to be an important individual difference factor in decision making. The current study utilized a risky decision‐making task (called the “cups task”) in which choices are made to both earn and avoid losing hypothetical money. Critically, this design allowed investigators to examine numeracy‐related differences in adaptive decision‐making as measured by sensitivity to expected value (EV) differences over 54 paired‐choice trials—some in which it was advantageous to take a risk and some in which it was not. Results showed that in an undergraduate sample of 114 individuals, the less numerate took more risks and were less sensitive to varying EV levels than the more numerate, especially when it was disadvantageous to take a risk and when the choice involved a potential loss (rather than a gain). These results are consistent with a dual processing account in which the more numerate are much better than the less numerate at extracting the precise affective “gist” of the numerical information, which is then used to determine the goodness or badness of a particular choice. Copyright © 2012 John Wiley & Sons, Ltd.     

Risky choice: An examination of information acquisition behavior

The monitoring of information acquisition behavior, along with other process tracing measures such as response times, was used to examine how individuals process information about gambles into a decision. Subjects indicated preferences among specially constructed three-outcome gambles. The number of alternatives available was varied across the sets of gambles. A majority of the subjects processed information about the gambles in ways inconsistent with compensatory models of risky decision making, such as information integration (Anderson & Shanteau, 1970). Furthermore, the inconsistency between observed information acquisition behavior and such compensatory rules increased as the choice task became more complex. Alternative explanations of risky choice behavior are considered.     

VIOLATIONS OF MONOTONICITY AND CONTEXTUAL EFFECTS IN CHOICE-BASED CERTAINTY EQUIVALENTS

Abstract —This article investigates choices between gambles and amounts of money to explore two issues in decision making First, in recent studies, judgments of the values of gambles violated monotonicity (dominance), yet choices between the same gambles satisfied monotonicity, producing reversals of preference This experiment tested whether certainty equivalents based on choices between gambles and money would violate monotonicity Results indicated that these choices violated monotonicity in the same way as had judgments Second, this experiment investigated whether the certainty equivalent of a gamble would depend on the distribution of amounts offered for comparison It was found that certainty equivalents based on choices depended on the context m the same fashion as psychophysical comparisons Apparently, paradoxes of behavioral decision making are not eliminated by using choices instead of judgments to investigate human preferences     

Dimension integration: Testing models without trade-offs

This paper tests a behavioral property called dimension integration. The test evaluates models, such as lexicographic semi-orders and the priority heuristic, which assume that a person uses only one dimension at a time. It provides a way to compare such models against those that assume a person combines information from different dimensions. The test allows one to test the hypothesis that different people use different lexicographic semi-orders with different threshold parameters. In addition, by use of a “true and error” model, it is possible to “correct” for unreliability of choice in order to estimate the proportions of participants who show different response patterns that can be classified as integrative or not integrative. An experiment with 260 participants was conducted in which people made choices between two-branch gambles. The aggregate results violate the priority heuristic and six lexicographic semi-orders. The data also refute the theory that people use a mixture of these lexicographic semi-orders. In addition, few individuals appear to show response patterns consistent with non-integrative models. Instead, they show that most individuals show patterns consistent with the hypothesis that they combine information between dimensions.     

Fuzzy-trace theory and framing effects in choice: Gist extraction,truncation, and conversion

In the first section of this paper, we analyze classic framing effects according to principles of fuzzy-trace theory. The key principle of the theory is that reasoning prefers to operate on simple gist, as opposed to exact details. Then, we introduce new data in three experiments designed to test this fuzzy-processing assumption. In the first experiment, framing effects were conserved when numerical information was omitted from standard problems, arguing against a critical role for numerical processing. In the second experiment, evidence is presented that some subjects simplified framing problems by mentally truncating linguistically redundant complements in gambles. Experimentally deleting parts of gambles mimiced such effects, and choices varied depending on the information that remained explicit. In the third experiment, truncation effects were also demonstrated for mixed-frame problems, in which one option is positive and the other is negative. The data disconfirmed a ‘halo’ hypothesis that subjects merely selected the positive option over the negative one. Instead, choices were accounted for by conversion, that is, transforming problems into uniformly positive representations to avoid the complexity of negation. In all three experiments, choices could be explained as a consequence of radically simplifying decision information.     

Dominance violations in judged prices of two- and three-outcome gambles

The dominance principle states that one should prefer the option with consequences that are at least as good as those of other options for any state of the world. When applied to judged prices of gambles, the dominance principle requires that increasing one or more outcomes of a gamble should increase the judged price of the gamble, with everything else held constant. Previous research has uncovered systematic violations of the dominance principle: people assign higher prices to a gamble with a large probability of winning an amount, Y, otherwise zero, than they do to a superior gamble with the same chance of winning Y, otherwise winning a small amount, X! These violations can be explained by a configural-weight theory in which two-outcome gambles are represented with two sets of decision weights; one set for outcomes having values of zero and another set for lower-valued outcomes that have nonzero values. The present paper investigates whether dominance violations are limited to two-outcome gambles. Results show that people violate the dominance principle with three-outcome gambles even with financial incentives. Furthermore, results could be predicted from the configural-weight theory. The data do not support the view that configural weighting is caused by a shift in strategy that would apply only to two-outcome gambles.     

We are more selfish than we think: The endowment effect and reward processing within the human medial-frontal cortex

Perceived ownership has been shown to impact a variety of cognitive processes: attention, memory, and—more recently—reward processing. In the present experiment we examined whether or not perceived ownership would interact with the construct of value—the relative worth of an object. Participants completed a simple gambling game in which they gambled either for themselves or for another while electroencephalographic data were recorded. In a key manipulation, gambles for oneself or for another were for either small or large rewards. We tested the hypothesis that value affects the neural response to self-gamble outcomes, but not other-gamble outcomes. Our experimental data revealed that while participants learned the correct response option for both self and other gambles, the reward positivity evoked by wins was impacted by value only when gambling for oneself. Importantly, our findings provide additional evidence for a self-ownership bias in cognitive processing and further demonstrate the insensitivity of the medial-frontal reward system to gambles for another.     

The moderating role of objective and subjective numeracy in attribute framing

Previous research has found that objective numeracy moderates framing effects: People who are less numerate were found to be more susceptible to goal‐framing and attribute‐framing effects than people who are highly numerate. This study examined the possibility that subjective numeracy likewise moderates attribute framing in contexts where participants are presented with percentages of success or failure. The results show that compared with highly numerate participants, less numerate participants were more susceptible to the effect of attribute framing. Interestingly, this moderating effect was revealed only when using objective numeracy measures, and not when subjective numeracy measures were used. Future research is suggested to replicate these findings, to establish the generalizability of numeracy as a moderator of other cognitive biases, and to examine several possible theoretical explanations for the differential moderation of attribute‐framing bias.     

Selection of Decision Strategies After Conscious and Unconscious Thought

It is commonly assumed that the use of simple, non‐compensatory strategies is especially pronounced in memory‐based decisions, where information costs are high. At the same time, there is evidence that in memory‐based decisions, a compensatory processing of attributes is facilitated when the processing occurs unconsciously rather than consciously. We applied a strategy classification approach—developed in research on non‐compensatory heuristics—to test two key tenets of unconscious thought theory: the capacity principle and the weighting principle. Participants memorized attribute information about cars and were subsequently either directed to or diverted from thinking consciously about their preferences between the cars (conscious versus unconscious thought). Then, participants indicated in pair‐wise choices which car they would prefer and were classified (based on their choices) as using either one of two compensatory strategies (equal weight or weighted additive) or a non‐compensatory strategy (lexicographic heuristic). In line with the capacity principle, the number of participants best described by a compensatory strategy (the equal‐weight strategy) tended to be higher after unconscious thought than after conscious thought, whereas the number of participants best described by the lexicographic heuristic tended to be lower. Inconsistent with the weighting principle, participants in the unconscious thought condition were better described by the equal‐weight strategy than by the weighted‐additive strategy. In Experiment 2, in which participants were not instructed to form an impression while learning the attribute information, the use of the equal‐weight strategy was not more prevalent after unconscious thought. Copyright © 2013 John Wiley & Sons, Ltd.     

Attachment and autobiographical memory retrieval: Event-related potential evidence from strategic information processing

This article presents two studies using event-related potentials combined with an autobiographical memory (AM) retrieval task and a lexical judge task to explore differences in AM retrieval among differently attached individuals and to further explore whether the source of these differences is the schematic information processing mode or strategic information processing mode. The effectiveness of the information processing mode is also studied. The results revealed that differences in the AM extraction of different attachment styles were due to the strategic information processing mode, while no differences were found in the schematic information processing used by individuals with different attachment styles. Further, the strategic information processing used by the securely attached group was more flexible and efficient than that used by the insecurely attached group; moreover, the strategic information processing mode used by the avoidantly attached group was more stable and consistent than that used by the anxiously attached group.     

An empirical assessment of the form of utility functions

Utility functions, which relate subjective value to physical attributes of experience, are fundamental to most decision theories. Seven experiments were conducted to test predictions of the most widely assumed mathematical forms of utility (power, log, and negative exponential), and a function proposed by Rachlin (1992). For pairs of gambles for real monetary gains, undergraduate and nonstudent subjects either reported an equalizing amount for 1 outcome that made the gambles subjectively equal or chose between gambles where the amounts were varied across trial, which allowed the equalizing amount to be estimated from their pattern of choices. Using a novel method that eliminates several limitations of previous research, I manipulated the outcomes across trials such that each type of utility function predicted a linear relationship between the equalizing amounts and the amounts of the other outcomes, and made point predictions for either the slope or intercept of that relationship. In a meta-analysis across experiments, systematic departures from the point predictions were observed for each type of utility function. Thus, the data imply that despite their historical importance and incorporation in many psychological and economic decision theories, the most widely assumed models of utility are incorrect.