Lottery Choice Research Articles

Eliciting Time Preferences When Income and Consumption Vary: Theory, Validation & Application to Job Search

We propose a simple method for eliciting individual time preferences without estimating utility functions even in settings where background consumption changes over time. It relies on lottery tickets with high rewards. In a standard intertemporal choice model high rewards decouple lottery choices from variation in background consumption. We validate our elicitation method experimentally on two student samples: one asked in December when their current budget is reduced by extraordinary expenditures for Christmas gifts; the other asked in February when no such extra constraints exist. We illustrate an application of our method with unemployed job seekers which naturally have income/consumption variation.

The Reassurance Effect: Paradoxical Preferences in Information Acquisition

Conventionally, information acquisition is motivated by its instrumental value—the value derived from adapting action to new knowledge. In this paper, we analyse a model of individual preferences that anticipate elation and disappointment—the emotional responses to good and bad news. We assume loss aversion (bad news looms larger than good news) and diminishing sensitivity. While emotions are generally presumed to cause information avoidance, our key finding is that a decision maker faced with a large potential loss of low probability may seek non-instrumental information for the purpose of reassurance. When information is weakly instrumental, the pursuit of reassurance can cause a decision maker who is less likely to face a loss to value information more than a decision maker who is more likely to face the same loss. This paradox disappears at higher levels of information instrumentality. We provide empirical support for this effect, first in the context of an incentivized controlled experiment involving a compound lottery choice (N = 403), and then in the context of a survey (N = 1349) about the desire to undertake COVID-19 testing, carried out at the early stages of the pandemic.

Effects and mechanisms of information saliency in enhancing value-based decision-making in younger and older adults

Aging attenuates frontostriatal network functioning, which could lead to deficits in value computation when decision-making involves uncertainty. Although it has been shown that visually enhancing information saliency of outcome probability can improve decision-making in old age, mechanisms of this effect are still unclear. In the present study, the saliency of outcome probability was increased using a color-coding scheme as a decision aid in a mixed lottery choice task, and spontaneous eye-blink rate and pupillary responses were assessed in younger and older adults. Older adults showed lower value sensitivity than younger adults; however, increasing information saliency benefitted choice behaviors in both age groups. Furthermore, the decision aid reduced pupil size during decision-making in both age groups, suggesting that enhancing information saliency decreases cognitive demands of value computation. Baseline value sensitivity was negatively correlated with benefit of enhancing information saliency only in older adults. As value representations in older decision makers are less distinctive at baseline, they may have required more environmental compensation than younger adults.

Impact of Hematologists' Personality and Behavioral Traits on Medical Decision-Making for Elderly Acute Myeloid Leukemia: A National Study in China

Introduction: The treatment strategy for elderly patients with acute myeloid leukemia (AML) is individualized due to the heterogeneity of the disease biology and the paucity of strong evidence in clinical practice. In general, regimens for elderly AML patients can be divided into standard intensive induction, low-intensity therapy, and best supportive care. Such medical decision-making regarding elderly patients with AML might be affected by physicians' occupational and non-occupational factors. Methods: We performed a national vignette-based survey of hematologists in China, to explore the impact of hematologists' personality and behavioral traits on medical decision-making for elderly AML patients. The medical decision-making for elderly AML patients was evaluated using 6 clinical vignettes. Hematologists' attitudes toward risk and uncertainty, personality traits, and decision-making styles were assessed using binary lottery choices and well-recognized self-report inventories. Results: Of the 820 eligible hematologists contacted, a total of 529 completed the survey; the response rate was 64.5%. In total, 354 (67%) were women. The mean age of the participants was 41.0 ± 7.4 years (range, 27-64 years). Senior hematologists accounted for 60% (n = 318) of the participants, including associate chief physicians (185, 35%) and chief physicians (133, 25%). The rest attending physicians, which are considered as junior hematologists, accounted for 40% of the participants (n = 211). The resulting binary regression model in predicting the therapy intensity preference of medical decision-making for elderly AML patients contained the following factors: hematologists' professional title group (OR = 0.012, 95% CI, 0.001 to 0.136, P < 0.001), conscientiousness (OR = 0.336, 95% CI, 0.121 to 0.932, P = 0.036), extraversion (OR = 0.403, 95% CI, 0.166 to 0.974, P = 0.044), conscientiousness by title group (OR = 2.009, 95% CI, 1.100 to 3.667, P = 0.023), and extraversion by title group (OR = 1.627, 95% CI, 0.965 to 2.743, P = 0.068). Using interaction analyses, we found that junior hematologists with a higher level of extraversion (mean difference = 0.27; 95% CI, 0.07 to 0.45; P = 0.009) or conscientiousness (mean difference = 0.19; 95% CI, 0.01 to 0.36; P = 0.028) tended to prescribe more intensive therapy. Meanwhile, no significant correlations between physicians' nonoccupational characteristics and medical decision-making for elderly AML patients were observed in senior hematologists. Conclusions: Our study suggests that hematologists' personalities contribute to medical decision-making for elderly AML patients, depending on the hematologists' professional titles. Among attending physicians, those with a higher level of extraversion or conscientiousness tended to prescribe more intensive therapy. Meanwhile, in chief and associate chief physicians, there was no significant correlation observed between hematologists' personality traits and medical decision-making for elderly AML patients. Disclosures No relevant conflicts of interest to declare.

Neural responses reveal associations between personal values and value-based decisions.

Personal values are thought to modulate value-based decisions, but the neural mechanisms underlying this influence remain unclear. Using a Lottery Choice Task functional brain imaging experiment, we examined the associations between personal value for hedonism and security (based on the Schwartz Value Survey) and subjective neurocognitive processing of reward and loss probability and magnitude objectively coded in stimuli. Hedonistic individuals accepted more losing stakes and showed increased right dorsolateral prefrontal and striatal and left parietal responses with increasing probability of losing. Individuals prioritizing security rejected more stakes and showed reduced right inferior frontal and amygdala responses with increasing stake magnitude, but increased precuneus responses for high-magnitude high-winning probability. With higher hedonism, task-related functional connectivity with the whole brain was higher in right insula and lower in bilateral habenula. For those with higher security ratings, whole-brain functional connectivity was higher in bilateral insula, supplementary motor areas, right superior frontal gyrus, dorsal anterior cingulate cortex, and lower in right middle occipital gyrus. These findings highlight distinct neural engagement across brain systems involved in reward and affective processing, and cognitive control that subserves how individual differences in personal value for gaining rewards or maintaining status quo modulate value-based decisions

Fractional Degree Stochastic Dominance

We develop a continuum of stochastic dominance rules for expected utility maximizers. The new rules encompass the traditional integer-degree stochastic dominance; between adjacent integer degrees, they formulate the consensus of individuals whose absolute risk aversion at the corresponding integer degree has a negative lower bound. By extending the concept of “uniform risk aversion” previously proposed in the literature to high-order risk preferences, we interpret the fractionalized degree parameter as a benchmark individual relative to whom all considered individuals are uniformly no less risk averse in the lottery choices. The equivalent distribution conditions for the new rules are provided, and the fractional degree “increase in risk” is defined. We generalize the previously defined notion of “risk apportionment” and demonstrate its usefulness in characterizing comparative statics of risk changes in fractional degrees. This paper was accepted by David Simchi-Levi, decision analysis.

Bidirectional links between adolescent brain function and substance use moderated by cognitive control

No clear consensus exists as to whether neurodevelopmental abnormalities among substance users reflect predisposing neural risk factors, neurotoxic effects of substances, or both. Using a longitudinal design, we examined developmental patterns of the bidirectional links between neural mechanisms and substance use throughout adolescence. 167 adolescents (aged 13-14years at Time 1, 53% male) were assessed annually four times. Risk-related neural processing was assessed by blood-oxygen-level-dependent responses in the insula during a lottery choice task, cognitive control by behavioral performance during the Multi-Source Interference Task, and substance use by adolescents' self-reported cigarette, alcohol, and marijuana use. Latent change score modeling indicated that greater substance use predicted increased insula activation during risk processing, but the effects of insula activation on changes in substance use were not significant. The coupling effect from substance use to insula activation was particularly strong for adolescents with low cognitive control, which supports the theorized moderating role of cognitive control. Our results elucidate how substance use may alter brain development to be biased toward maladaptive decision-making, particularly among adolescents with poor cognitive control. Furthermore, the current findings underscore that cognitive control may be an important target in the prevention and treatment of adolescent substance use given its moderating role in the neuroadaptive effects of substance use on brain development.

Risk aversion hinders forestry professionals to adapt to climate change

Forestry professionals’ attitudes towards risk and uncertainty under climate change, together with their perception about suitability of adaptation strategies, were investigated in Central Europe. We applied an original methodology based on lottery choices to quantify their risk and uncertainty attitude, combined with a questionnaire study about the adaptation to climate change. We tested the hypothesis that the higher the risk and uncertainty aversion of respondents, the higher the trend towards changing business-as-usual to adaptive decisions. The result falsifies the research hypothesis since uncertainty aversion has no effect, whereas risk aversion has a negative impact on the decision to adapt. We argue that risk of any change in the business-as-usual is higher than the expected risk of climate change impact in Central European forestry. We conclude that having access to novel information about expected impacts of climate change, taking into account institutional challenges and supportive experiences about useful adaptation strategies, may convince forestry professionals to adapt in the future.

How Might Climate Change Influence farmers' Demand for Index-Based Insurance?

The low observed uptake of non-subsidised index-based insurance policies in developing countries has been puzzling researchers for about a decade. This paper analyses the role of drought frequency in farmers' demand for index-based insurance in developing countries. While it is typically assumed that an increase in exposure to risk would result in higher demand for index insurance, this paper finds the opposite: an increase in drought frequency may result in lower demand for index insurance under fairly standard conditions. In an expected utility model, we show that the demand for insurance is an inverted U function of drought frequency. We further show that downside basis risk decreases insurance demand under frequent drought conditions. It implies that insurance against similar but more frequent events cannot meet large demand from farmers. To check the empirical relevance of these effects, we conduct an insurance field experiment in Burkina Faso with 205 farmers. We analyse insurance demand for different drought frequencies, different levels of basis risks and different loading factors through incentivised lottery choices. This analysis confirms that for higher drought frequencies, insurance demand is lower. Insurance demand also decreases with basis risk and the loading factor.

Further Reflections on Prospect Theory

A menu of paired lottery choices is structured so that the crossover point to the high-risk lottery can be used to infer the degree of risk aversion or preference. When payoffs are hypothetical and gains are transformed into losses by reflecting them around zero, more than half of the subjects exhibit a effect (risk aversion for gains and risk seeking for losses). With cash payoffs, however, this pattern is not observed; many subjects exhibit risk aversion for both gains and losses, and the frequency of reflection (about ten percent) is not much greater than the frequency of reverse reflection (risk seeking for gains and risk aversion for losses). Risk aversion is, however, less common in the loss domain.

Associations between peer attachment and neural correlates of risk processing across adolescence

Adolescence is a period of increased risk-taking behavior where individual differences in risk taking may relate to both adverse and positive experiences with peers. Yet, knowledge on how risk processing develops in the adolescent brain and whether this development is related to peer attachment is limited. In this longitudinal functional magnetic resonance imaging (fMRI) study, we collected data from 167 adolescents (53% male) followed for four annual assessments across ages 13–17 years. At each assessment, participants completed a lottery choice task to assess neural risk processing and reported on their perceived attachment to peers and parents. Behaviorally, risk-preference on the lottery choice task decreased linearly with age. Neural activation during risk processing was consistently found in the insula and dACC across the four assessments and increased linearly from ages 13–17 years. Furthermore, higher peer attachment was related to greater right insula risk processing for males but not for females, even after controlling for parental attachment. The magnitudes of this association did not change with age. Findings demonstrate that neural risk processing shows maturation across adolescence and high peer attachment may be associated with low risk taking by heightening neural sensitivity to potential risks for male adolescents.

Risk aversion over price variability: experimental evidence

ABSTRACT Eliciting risk attitudes is of crucial importance in economics. We test whether the degree of risk aversion that an individual exhibits in the context of the direct utility function is equivalent to that elicited in the context of the indirect utility function, as implied by duality theory. Our lab experiment uses payoff-based lottery choices (which are based on the direct utility function) and equivalent price-based lottery choices (which are based on the indirect utility function). We reject the equivalence of risk preferences from these two contexts. Subjects are more sensitive to price uncertainty than to equivalent payoff uncertainty.

The Predictive Power of Risk Elicitation Tasks

This work reports an online experiment with a general-population sample examining the performance of budget-choice tasks for elicitation of risk attitudes. First, I compare the investment task of Gneezy and Potters (1997) with the standard choicelist method of Holt and Laury (2002), and evaluate their performance in terms of the number of correctly-predicted binary decisions in a set of out-of-sample lottery choices. There are no significant differences between the tasks in this sense, and performance is modest. Second, I included three additional budget-choice tasks (selection of a lottery from a linear budget set) where optimal decisions should have been corner solutions, and find that a large majority of participants provided interior solutions instead, casting doubts on subjects’ understanding of tasks of this type.

To Pay or Not to Pay: Measuring Risk Preferences in Lab and Field

Measuring risk preferences in the field is critical for policy, however, it can be expensive and maygenerate unequal payoffs due to bad luck. For instance, the commonly used measure of Holt andLaury (2002) relies on a dozen of lottery choices and payments which makes it time consuming andcostly, but also raises moral concerns as a result of the unequal payments generated by the lotteries.We propose a short version of the Holt and Laury (2002) which produces in the lab (Spain) thesame results as the long HL. Using the short HL in the field (Honduras and Nigeria), we observethat paying or not for the measurement of risk preferences produces the same findings. Our low-costapproach makes the measurement of risk preferences simpler, faster and cheaper in the lab and field.

Experimental evidence on personality traits and preferences

AbstractUsing an experiment, we test the relation between personality traits and revealed risk and ambiguity preferences, and we consider the effects of personality traits prevalence in a group on the decision making of each group member. In the experiment, subjects reveal their risk and ambiguity preferences through lottery choices. They then participate in an unstructured group chat. Afterwards, they are given the chance to revise their initial lottery choices. Results show that personality traits affect ambiguity but not risk preferences before the chat. Specifically, agreeableness is negatively related to ambiguity aversion. We also show that the probability of changing decisions after the chat is affected by the individual's personality traits but not by the traits of the other group members. The latter only affects the direction and the degree of the change.

Longitudinal link between trait motivation and risk-taking behaviors via neural risk processing

Prior research has emphasized the importance of the motivational system in risky decision-making, yet the mechanisms through which individual differences in motivation may influence adolescents’ risk-taking behaviors remain to be determined. Based on developmental neuroscience literature illustrating the importance of risk processing in explaining individual differences in value-based decision making, we examined risk processing as a potential mediator of the association between trait motivations and adolescents’ risk-taking behaviors. The sample consisted of 167 adolescents (47% females) annually assessed for three years (13–14 years of age at Time 1). Approach and avoidance motivations were measured using adolescent self-report. Risk preference was estimated based on adolescents’ decisions during a modified economic lottery choice task with neural risk processing being measured by blood-oxygen-level-dependent responses in the bilateral insular cortex for chosen options. Adolescents’ risk-taking behaviors were assessed by laboratory-based risky decision making using the Stoplight task. Longitudinal mediation analyses revealed a significant indirect effect of approach motivation, such that higher motivation was correlated with increases in risk-taking behaviors via decreases in neural activation in the bilateral insular cortex during risk processing. The findings illustrate a neural pathway through which approach motivation is translated into the vulnerability to risk taking development.

Insular Risk Processing Predicts Alcohol Use Via Externalizing Pathway in Male Adolescents

Male adolescents exhibit greater impulsivity and externalizing symptomatology relative to female adolescents. Furthermore, externalizing symptomatology has been associated with greater alcohol use and differential anterior insula functioning. The current longitudinal study on adolescents examined whether activity in the anterior insula, when processing uncertain outcomes and representing risk, is directly associated with gender differences in later adolescent alcohol use frequency, as well as indirectly through externalizing symptomatology. Using functional magnetic resonance imaging, we examined whether gender moderated these associations in a sample of 161 adolescents (53% male) with repeated annual measurements over 3 years. We monitored responding of a region implicated in risk processing during an economic lottery choice task involving uncertain outcomes. Self-reported externalizing symptomatology and alcohol use frequency were collected at all time points. Results indicated that there was a significant indirect effect of anterior insula processing during the task at Time 1 on alcohol use at Time 3 through externalizing symptomatology at Time 2 for male, but not female, adolescents. Externalizing symptomatology predicted alcohol use for both male and female adolescents. The findings suggest gender differences in vulnerability to later alcohol use, specifically in terms of how a neurobiological susceptibility to risk insensitivity may disproportionately influence male adolescents' externalizing symptomatology. Male adolescents who do not effectively integrate risk-related signals are likely to engage in externalizing behaviors, which in turn are related to later alcohol use. Findings also suggest differential roles of risk-related brain function that contribute to gendered pathways to adolescent health-risk behaviors.

Take it or leave it: Experimental evidence on the effect of time-limited offers on consumer behaviour

Making time-limited offers is a common retail pricing strategy. Economic theory implies that such offers inhibit price search, making markets less competitive. We investigate experimentally whether this effect is intensified by behavioural factors – specifically, feedback-conditional regret, reduced decision quality due to time constraints, and aversion to small-scale risk. Participants choose from a sequence of alternative price offers, one of which might be time-limited, under various conditions. These price search problems were matched with equivalent, time-unconstrained binary choices between lotteries. We find no evidence of regret effects. Surprisingly, time-limited offers are more likely to be chosen when the time available for decision-making is longer. Overall, individuals show aversion to small-scale risk; this is stronger in price search than lottery choice. Allowing for this, choices in the two types of task tend to be mutually consistent at the individual level, even when decision-making is subject to tight time constraints.

The Theory Is Predictive, but Is It Complete? An Application to Human Perception of Randomness

To evaluate how well economic models predict behavior it is important to have a measure of how well any theory could be expected to perform. We provide a measure of the amount of predictable variation in the data that a theory captures, which we call its completeness. We evaluate the completeness of leading theories in three applications---assigning certainty equivalents to lotteries, initial play in games, and human generation of random sequences---and show that this approach reveals new insights. We also illustrate how and why our completeness measure varies with the experiments considered, for example with the choice of lotteries used to evaluate risk preferences, and explain how our completeness measure can help guide the development of new theories.

Asymmetric valuation of gains and losses in effort-based decision making.

Our decisions are often swayed by a desire to avoid losses over a desire to acquire gains. While loss aversion has been confirmed for decisions about money or commodities, it is unclear how individuals generally value gains relative to losses in effort-based decisions. For example, do individuals avoid greater work more than they seek out less work? We examined this question in the context of physical effort, using an arm-reaching task in which decreased effort was framed as a gain and increased effort was framed as a loss. Subjects performed reaching movements against different levels of resistance that increased or decreased the effort demands of the reaches. They then chose to accept or reject various lotteries, each with a possibility of performing less effortful reaches and a possibility of performing more effortful reaches, compared to the certain outcome of performing reaches against a fixed reference level of effort. Subjects avoided higher effort conditions more than they sought lower effort conditions, demonstrating asymmetric valuation of gains and losses. Using prospect theory, we explored various model formulations to determine subject-specific valuation of effort in these mixed gambles. A nonlinear model of effort valuation demonstrating increasing sensitivity to absolute effort best described the effort lottery choices. In contrast to the loss-aversion observed in financial decisions, there was no evidence of loss aversion in effort-based decisions. Rather, we observed moderate relief-seeking behavior. This model confirms that gains and losses are valued asymmetrically. This is due to the combined effects of increasing sensitivity to absolute effort and moderate relief-seeking, leading to a net effect of greater avoidance of higher effort. Asymmetric valuation was magnified on a later day of testing. In contrast, subjects were loss-averse in a comparable financial task. We suggest that consideration of nonlinear effort valuation can inform future studies of sensorimotor control and exercise motivation.