Reversals of preference between compound and simple risks: The role of editing heuristics

Abstract

A reversal of preference between compound and simple risks was demonstrated in the context of compound gambles with loss elements transparently in common. The role of predecision editing heuristics in this violation of the Invariance Principle was explored in a process-tracing study. Verbal reports showed thatcancellation-by-similarity andamalgamation heuristics were differentially applied to simple and compound risks depending on their similarity structure. It was argued that such heuristics are often useful in simplifying complex choice problems without loss of important information. However, the inappropriate cancellation of elements of compound risks can be maladaptive, and can contribute to a lack of insight into the true nature of these risks.