Too good to be true? Psychological responses to uncommon options in risk–reward environments

Abstract

Risks and rewards, or payoffs and probabilities, are inversely related in many choice environments. We investigated people's psychological responses to uncommon combinations of risk and reward that deviate from learned regularities (e.g., options that offer a high payoff with an unusually high probability) as they evaluated risky options. In two experiments (N = 183), participants first priced monetary gambles drawn from environments in which risks and rewards were negatively correlated, positively correlated, or uncorrelated. In later trials, they evaluated gambles with uncommon combinations of risk and reward—that is, options that deviated from the respective environment's risk–reward structure. Pricing, response times, and (in Experiment 2) pupil dilation were recorded. In both experiments, participants took more time when responding to uncommon compared to foreseeable options or when the same options were presented in an uncorrelated risk–reward environment. This result was most pronounced when the uncommon gambles offered higher expected values compared to the other gambles in the set. Moreover, these uncommon, high‐value options were associated with an increase in pupil size. These results suggest that people's evaluations of risky options are based not only on the options' payoffs and probabilities but also on the extent to which they fit the risk–reward structure of the environment.