Abstract
Research shows that people tend to overweight small probabilities in description and underweight them in experience, thereby leading to a different pattern of choices between description and experience; a phenomenon known as the Description-Experience (DE) gap. However, little is known on how the addition of an intermediate option and contextual framing influences the DE gap and people’s search strategies. This paper tests the effects of an intermediate option and contextual framing on the DE gap and people’s search strategies, where problems require search for information before a consequential choice. In the first experiment, 120 participants made choice decisions across investment problems that differed in the absence or presence of an intermediate option. Results showed that adding an intermediate option did not reduce the DE gap on the maximizing option across a majority of problems. There were a large majority of choices for the intermediate option. Furthermore, there was an increase in switching between options due to the presence of the intermediate option. In the second experiment, 160 participants made choice decisions in problems like those presented in experiment 1; however, problems lacked the investment framing. Results replicated findings from the first experiment and showed a similar DE gap on the maximizing option in a majority of problems in both the absence and presence of the intermediate option. Again, there were a large majority of choices for the intermediate option. Also, there was an increase in switching between options due to the presence of the intermediate option. Meta-analyses revealed that the absence or presence of the intermediate option created certain differences in the strength of frequency and recency processes. Also, a single natural-mean heuristic model was able to account for the experimental results across both experiments. We discuss implications of our findings to consequential decisions made after information search.
Highlights
Warren Buffet, in one of his speeches, stated that “risk comes from not knowing what you’re doing” (Berman, 2014)
We performed two-way between-subjects ANOVAs to compare the effect of conditions and options on the allocation and choice preferences for the variable and intermediate options
We investigated the influence of choiceset size using problems with rare and common outcomes in an investment framing
Summary
Warren Buffet, in one of his speeches, stated that “risk comes from not knowing what you’re doing” (Berman, 2014). Investment sector has remained a popular business destination with people investing in stocks and bonds Such investment options have their own set of risks, which, for the most part depend upon the number of options and probabilistic returns (Houpt and Border, 2014). Influence of an Intermediate Option on DE Gap. Investment decisions, which are mostly consequential, are likely to be made by gathering information in two formats: description and experience. Little is known on the influence of intermediate options and problem framing on the DE gap; researchers have investigated how choice-set sizes influence people’s information search and subsequent decisions (Hills et al, 2013). These researchers found that inequity aversion was influenced by choice-set size and that that the variance in inequity aversion increased with the range of choice sets
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