Extreme Outcomes Accentuate Overweighting of Low Probabilities and Underweighting of High Probabilities in Experience‐Based Choice

Abstract

ABSTRACTSubjective inferences of probability are critical for decisions involving uncertainty. Recent studies have suggested that extreme outcomes bias beliefs about the value of uncertain options toward the best/worst outcome possible when learning the odds through experience, leading to increased preferences for uncertain options over equivaluable sure bets when there is the prospect of gain and, conversely, aversion to uncertain options when there is the prospect of loss. However, prior studies regarding the influence of extreme outcomes on decisions involving uncertainty have only done so using 50/50 gambles, and it was unclear whether extreme outcomes biased probability perception more broadly. Across three pre‐registered experiments, we found that when people made decisions between equivaluable certain and uncertain options, they particularly preferred uncertain options at low probabilities (20%) when there was the prospect of gain and avoided them when there was the prospect of loss, with these preferences being reduced or even reversed at medium (50%) and high (80%) probabilities. We also found that uncertainty preferences were influenced by outcome extremity and the relative certainty associated with safe reference options. We conclude that extreme outcomes accentuate the overweighting of low probabilities and the underweighting of high probabilities in experience‐based choice.