How People Make Decisions That Involve Risk

Abstract

Many health and safety problems, including war and terrorism, are by-products of how people reason about risk. I describe a new approach to reasoning about risk that implements a modern dual-process model of memory called fuzzy-trace theory. This approach posits encoding of both verbatim and gist representations, with reliance on the latter whenever possible; dependence of reasoning on retrieval cues that access stored values and principles; and vulnerability of reasoning to processing interference from overlapping classes of events, which causes denominator neglect in risk or probability judgments. These simple principles explain classic and new findings, for example, the finding that people overestimate small risks but ignore very small risks. Fuzzy-trace theory differs from other dual-process approaches to reasoning in that it places intuition at the apex of development, considering fuzzy intuitive processing more advanced than precise computational processing (e.g., trading off risks and rewards). The theory supplies a conception of rationality that distinguishes degrees of severity of errors in reasoning. It also includes a mechanism for achieving consistency in reasoning, a hallmark of rationality, by explaining how a person can treat superficially different reasoning problems in the same way if the problems share an underlying gist.