Abstract
Our understanding of the decisions made under scenarios where both descriptive and experience-based information are available is very limited. Underweighting of small probabilities was observed in the gain domain when both description and experience were provided. The divergence observed from the prospect theory suggests a need for a separate or modified theory of decision making under risk. Recent studies suggest a possible role of probability weighting in the choice behavior under risk. We investigated both gain and loss domains with and without feedback for small and large probability conditions. We characterized the shape of the probability weighting function by a two-parameter functional form representing discriminability (concave-convex shape) and attractiveness (level of absolute weights relative to objective probability). We replicated a fourfold pattern of risk attitude on non-WEIRD population. We find that feedback leads to underweighting of small probabilities and overweighting of large probabilities in the gain domain and overall underweighting of probabilities in the loss domain. We find that underweighting of small probabilities is driven by changes in discriminability and attractiveness components in the gain domain and changes in the attractiveness component in the loss domain. We have interpreted the results by proposing an updated belief-based account of decisions under uncertainty in which feedback, when available, influences the probability weighting mediating the choice behavior.
Highlights
Where to invest is a hard decision
The current paper aims at investigating the parameters of probability weighting, discriminability and attractiveness, for the choices made under risk in gain and loss domains, when both descriptive and experience-based information are available to the decision maker
There was a significant difference between large probability gain condition with feedback and without feedback [t(23) = 5.043, p = 0.000], large probability loss condition with and without feedback [t(23) = 3.46, p = 0.002], small probability gain condition with and without feedback [t(23) = −2.72, p = 0.01] and small probability loss condition with and without feedback [t(23) = −5.02, p = 0.000]
Summary
Where to invest is a hard decision. Consider yourself making a choice between investing into the stock market, i.e., a risky prospect, or into a fixed deposit, i.e., a safe option. If you have past experience of investing into the stock market, you would probably make a different decision from someone new to investing. Where a novice would rely only on the descriptive information about current market trends, you would integrate market trends with your experience to arrive at a suitable decision. Many real life situations involve such risky decisions based on both descriptive and experience-based information. Little is known about how decisions are made under such scenarios and how the two types of information are integrated (Barron et al, 2008). Few studies have investigated risky decision making using description and experience paradigm
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