Decision-Making under Risk of Loss in Children

Sophie Steelandt,Marie-Hélène Broihanne,Bernard Thierry,Valérie Dufour,Amélie Romain,Antonio Verdejo García

doi:10.1371/journal.pone.0052316

Abstract

In human adults, judgment errors are known to often lead to irrational decision-making in risky contexts. While these errors can affect the accuracy of profit evaluation, they may have once enhanced survival in dangerous contexts following a “better be safe than sorry” rule of thumb. Such a rule can be critical for children, and it could develop early on. Here, we investigated the rationality of choices and the possible occurrence of judgment errors in children aged 3 to 9 years when exposed to a risky trade. Children were allocated with a piece of cookie that they could either keep or risk in exchange of the content of one cup among 6, visible in front of them. In the cups, cookies could be of larger, equal or smaller sizes than the initial allocation. Chances of losing or winning were manipulated by presenting different combinations of cookie sizes in the cups (for example 3 large, 2 equal and 1 small cookie). We investigated the rationality of children's response using the theoretical models of Expected Utility Theory (EUT) and Cumulative Prospect Theory. Children aged 3 to 4 years old were unable to discriminate the profitability of exchanging in the different combinations. From 5 years, children were better at maximizing their benefit in each combination, their decisions were negatively induced by the probability of losing, and they exhibited a framing effect, a judgment error found in adults. Confronting data to the EUT indicated that children aged over 5 were risk-seekers but also revealed inconsistencies in their choices. According to a complementary model, the Cumulative Prospect Theory (CPT), they exhibited loss aversion, a pattern also found in adults. These findings confirm that adult-like judgment errors occur in children, which suggests that they possess a survival value.

Highlights

Individuals are regularly faced with fluctuations of their economic or general environment which are akin to situations of risk
In the realm of decision making under risk, the classical models in economics have long been based on the assumption that humans are rational decision-makers: when faced with a lottery game individuals should evaluate the odds of winning and losing before buying a ticket, and they should only chose the lottery when the expected outcome is favorable
We manipulated the chances to win or lose and recorded the children choices. By confronting their choices to the predictions from either Expected Utility Theory (EUT) which assumes rational decision-making, or from Cumulative Prospect Theory (CPT) which assumes probability distortion and loss aversion, we aimed at deciphering 1) if children decision-making is fully rational in a risky context, and if not 2) whether their judgment is affected by known judgment errors and how early they occur

Summary

Introduction

Individuals are regularly faced with fluctuations of their economic or general environment which are akin to situations of risk. In the realm of decision making under risk, the classical models in economics have long been based on the assumption that humans are rational decision-makers: when faced with a lottery game individuals should evaluate the odds of winning and losing before buying a ticket, and they should only chose the lottery when the expected outcome is favorable. We manipulated the chances to win or lose and recorded the children choices By confronting their choices to the predictions from either EUT which assumes rational decision-making, or from CPT which assumes probability distortion and loss aversion, we aimed at deciphering 1) if children decision-making is fully rational in a risky context (i.e. allowing them to maximize their expected utility as predicted by the EUT model), and if not 2) whether their judgment is affected by known judgment errors and how early they occur. If judgment errors possess a survival value, and once compensated for a slow maturation of the brain, they should be detectable early on in children

Methods

Results

Discussion