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Agata MichalaszekWarsaw School of Social
Psychology
Information search patterns in risk judgment and in risky choices
Expectation Models
• rational choice is based on max EV
• logarithmic function of utility (Bernoulli, 1738, 1954)
• objective value was replaced with subjectvie utility
• people violate EU theory (Allais, 1953)
and common ratio rule
i
n
iivpEV
1
)(1
i
n
ii vupEU
Expectation Models – nonlinear functions of value and p
• Prospect Theory – value of each outcome is weighted by a decision weight ╥(p) – nonlinear function of probability (Kahneman and Tversky, 1979)
• CPT - the separable decision weights was replaced with cumulative (rank-dependent) decision weights (Kahneman and Tversky, 1992)
)()( 11
1 pxvVn
i
Expectation Models – the same rule
• all those models (i.e. extensions of EV):EV, EU, SEU, OPT, CPT contains the same rule – people choose ‘the best’ alternative by maximizing the expected value
Is this a single way to look for a solution to inconsistencies between the EV rule and
actual behavior?
Two approaches
Extensions of EV rule
i.e. nonlinear v and p functions
Investigation of the way in which people
think
• e.g., how they acquire information?
• Information board (Payne, 1976)
Information searching due to EV
wl(pl) * l(loss) + wg(pg) * g(gain)
(e.g. Coombs and Lehner, 1984; Jia and Dyer, 1996; Jia, Dyer and Buttler, 1999; Luce and E.U. Weber, 1986; Sarin and M. Weber, 1993)
• probabilities and payoffs are combined multiplicatively
• each alternative is evaluated separately (global evaluation)
Pattern of information searching due to EV
• Situation 1
payoff1
p1
payoff2
p2
………payoffi
pi
• Situation 2
payoff1
p1
payoff2
p2
………payoffi
pi
Each alternative is evaluated separately.
Pattern of information searchingdue to DIM
• Situation 1
payoff1
p1
payoff2
p2
………payoffi
pi
• Situation 2
payoff1
p1
payoff2
p2
………payoffi
pi
Each dimension is evaluated separately. Dmensional Model – Payne, 1976
Two patterns of information searching
• Situation 1
payoff1
p1
payoff2
p2
………payoffi
pi
• Situation 2
payoff1
p1
payoff2
p2
………payoffi
pi EV
DIM
Main research question
Do people use:
the multiplicative or the dimensional pattern
of information acquisition,
while making risky choices ?
Risk judgement and choice: the same or not
• another important issue: risk judgement and choice
• the same or not?
• no risk concept in EV models
• risk attitudes follow from v and p functions
R–V Models – Markowitz:
• decisions are based on both expected return and its uncertainty or variability (related to risk) (Markowitz, 1959)
• risk is associated with the dispersion of the random variable
• risk as indepedent concept
WTP(x) = f {V(x), R(x)}
Research Questions
Risk judgment
• Do people use the multiplicative or the dimensional pattern of information acquisition
• Relative importance of positive and negative dimensions
• Relative importance of values and probabilities
Choice• Do people use the
multiplicative or the dimensional pattern of information acquisition
• Relative importance of positive and negative dimensions
• Relative importance of values and probabilities
Experiment – Design
• Subjects:• 120 respondents
• Measure of perceived risk• subjects rated riskiness on an 11-point scale (from 0 ‘not
risky at all’ to 10 ‘extremely risky’)
• Measure of decision making (choice)• subjects chose one of three options
0 10
a) option A b) option B c) option C
Experiment – Design: scenarios
• respondents were presented with 7 different risky situations related to financial risk, health hazards, gambling, etc.
• every situation consisted of 3 alternative options (A, B, C)
• each option consisted of 4 possible outcomes - 2 losses and 2 gains and propabilities of those outcomes
• participants could disclose as much detailed information about the options as necessary to judge their riskiness and to choose one of them
Experiment – Design: MouseLabWEB
• the MouseLabWEB idea was to monitor the information acquisition process of decision making
• information is hidden behind boxes – to access the information, the decision maker moves the mouse pointer over the box on the screen
A B Cmax gain
pmax gain
gain
pgain
loss
ploss
max loss
Pmax loss
http://www.mouselabweb.org/
Results
• number of box• average – 12 information• after 6th information less
systematic patterns• checked first 6 steps
A B Cmax gain 1 9 17pmax gain 2 10 18gain 3 11 19pgain 4 12 20loss 5 13 21ploss 6 14 22max loss 7 15 23Pmax loss 8 16 24
Results: information search patterns – Risk judgement
• 69,9% - due to dimensional model
• 4,2% - due to multiplicative model
• 26% - without any model 0
50
100
150
200
250
300
nomodel
DIM EV
%
amount ofreactions
Results: information search patterns - Choice
• 67,5% - due to dimensional model
• 1,8% - due to multiplicative model
• 30,8% - without any model 0
50
100
150
200
250
300
nomodel
DIM EV
%
amount ofreactions
Results: information search patterns
Risk judgement
• 69,9% - due to dimensional model
• 4,2% - due to multiplicative model
• 26% - without any model
Choice
• 67,5% - due to dimensional model
• 1,8% - due to multiplicative model
• 30,8% - without any model
Results: positive/negative outcomes
• positive/negative on top – biased• 2 display orders:
• control: the same amount of information
the same ratio pos/neg
pos payoff … … … neg payoff
neg payoff … … … pos payoff
vs
Results: positive/negative outcomes
Risk judgement• ratio pos/neg M=0,95
• amount of positive information M=7,04
• amount of negative information M=7,62
Choice• ratio pos/neg
M=0,96
• amount of positive information M=6,87
• amount of negative information M=7,50
Results: value or p
Risk judgement• ratio value/p
M=1,30
Choice• ratio value/p
M=1,23
ratio =
valuep
value
p= 1 < 1 > 1
Results: value or p
Risk judgement
• 41% amount value=p• 28,1% amount value>p• 16,6% only value• 11,2% amount value<p• 3,1% only p
Choice
• 47% amount value=p• 24,8% amount value>p• 12% only value• 12,8% amount value<p• 3,5% only p
Results: value or p for different situations
• ratio value/p different for different situations
• more p is considered for financial risk: investmenst and gambles
• more value is considered for health hazards and extreme sports
F(1,56)=0.612; p=.437
F(1,53)=5,475; p=.023
F(1,49)=0.117; p=.734
Conclusions:
• the majority of information search pattern is due to DIM model (about 70%)
• no differences in amount of considered infrmation between positive and negative outcomes
• p more frequent for precise information (‘experiments’)values more frequent for less precise information (‘natural setting’)