Abstract
The leading models of human and animal learning rest on the assumption that individuals tend to select the alternatives that led to the best recent outcomes. The current research highlights three boundaries of this “recency” assumption. Analysis of the stock market and simple laboratory experiments suggests that positively surprising obtained payoffs, and negatively surprising forgone payoffs reduce the rate of repeating the previous choice. In addition, all previous trails outcomes, except the latest outcome (most recent), have similar effect on future choices. We show that these results, and other robust properties of decisions from experience, can be captured with a simple addition to the leading models: the assumption that surprise triggers change.
Highlights
The leading models of human and animal learning rest on the assumption that individuals tend to select the alternatives that led to the best recent outcomes
Most studies document a robust positive recency effect (Estes, 1976; Barron and Erev, 2003; Barron and Yechiam, 2009; Biele et al, 2009): People tend to select the alternative that led to the best outcome in the previous trials1
The positive recency effect is reflected by a higher rate of switches to R after high forgone payoff (23%) than after low forgone payoff (6%)
Summary
The leading models of human and animal learning rest on the assumption that individuals tend to select the alternatives that led to the best recent outcomes. All previous trails outcomes, except the latest outcome (most recent), have similar effect on future choices We show that these results, and other robust properties of decisions from experience, can be captured with a simple addition to the leading models: the assumption that surprise triggers change. Most studies document a robust positive recency effect (Estes, 1976; Barron and Erev, 2003; Barron and Yechiam, 2009; Biele et al, 2009): People tend to select the alternative that led to the best outcome in the previous trials1 This pattern is consistent with the law of effect (Thorndike, 1898), brain activity (Schultz, 1998), and is assumed by most learning models (e.g., Bush and Mosteller, 1955; Rescorla and Wagner, 1972; Erev and Roth, 1998; Fudenberg and Levine, 1998; Selten and Buchta, 1998; Camerer and Ho, 1999; Dayan and Niv, 2008; Marchiori and Warglien, 2008; Erev and Haruvy, in press). The surprise-trigger-change hypothesis is consistent with the stock market data: Large price changes are surprising, and for that reason they increase trade (change implies trade)
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