Riskless Choice Research Articles

Comparing utility functions between risky and riskless choice in rhesus monkeys

Decisions can be risky or riskless, depending on the outcomes of the choice. Expected utility theory describes risky choices as a utility maximization process: we choose the option with the highest subjective value (utility), which we compute considering both the option’s value and its associated risk. According to the random utility maximization framework, riskless choices could also be based on a utility measure. Neuronal mechanisms of utility-based choice may thus be common to both risky and riskless choices. This assumption would require the existence of a utility function that accounts for both risky and riskless decisions. Here, we investigated whether the choice behavior of two macaque monkeys in risky and riskless decisions could be described by a common underlying utility function. We found that the utility functions elicited in the two choice scenarios were different from each other, even after taking into account the contribution of subjective probability weighting. Our results suggest that distinct utility representations exist for risky and riskless choices, which could reflect distinct neuronal representations of the utility quantities, or distinct brain mechanisms for risky and riskless choices. The different utility functions should be taken into account in neuronal investigations of utility-based choice.

Individual-level loss aversion in riskless and risky choices

Loss aversion can occur in riskless and risky choices. We present novel evidence on both in a non-student sample (660 randomly selected customers of a car manufacturer). We measure loss aversion in riskless choice in endowment effect experiments within and between subjects and find similar levels of average loss aversion in both. The subjects of the within study also participate in a simple lottery choice task which arguably measures loss aversion in risky choices. We find substantial heterogeneity in both measures of loss aversion. Loss aversion in riskless choice and loss aversion in risky choice are strongly positively correlated, but on average riskless loss aversion is higher than risky loss aversion. We find that in both choice tasks, loss aversion increases in age, income, and wealth, and decreases in education. Our results provide novel supportive input to the debate about the reality of loss aversion.

Comparing Utility Functions Between Risky and Riskless Choice in Rhesus Monkeys

Decisions can be risky or riskless, depending on the outcomes of the choice. Expected Utility Theory describes risky choices as a utility maximization process: we choose the option with the highest utility, which we compute considering both the value of the option and its associated risk. According to the random utility maximization framework, riskless choices could also be based on a utility measure. Neuronal mechanisms of utility-based choice may thus be common to both risky and riskless choices. This assumption would require the existence of a utility function that accounts for both risky and riskless decisions. Here, we investigated whether the choice behavior of macaque monkeys in riskless and risky decisions could be described by a common underlying utility function. We found that the utility functions elicited in the two choice scenarios were different from each other, even after taking into account the contribution of subjective probability weighting. Our results suggest that distinct utility representations exist for riskless and risky choices, which could reflect distinct neuronal representations of the utility quantities, or distinct brain mechanisms for risky and riskless choices. The different utility functions should be taken into account in neuronal investigations of utility-based choice.

Loss Aversion and Risk Aversion in Non-Clinical Negative Symptoms and Hypomania.

In the field of behavioral decision-making, “loss aversion” is a behavioral phenomenon in which individuals show a higher sensitivity to potential losses than to gains. Conversely, “risk averse” individuals have an enhanced sensitivity/aversion to options with uncertain consequences. Here we examine whether hypomania or negative symptoms predict the degree of these choice biases. We chose to study these two symptom dimensions because they present a common theme across many syndromes with compromised decision-making. In our exploratory study, we employed a non-clinical sample to dissociate the hypomanic from negative symptom dimension regarding choice behavior. We randomly selected a sample of 45 subjects from a student population (18–37 years) without self-reported psychiatric diagnoses (n = 835). We stratified them based on percentiles into a low hypomania/low negative symptoms (n = 15), a hypomania (n = 15), and a negative symptoms group (n = 15) using the hypomanic personality scale (HPS-30) and community assessment of psychic experiences (CAPE). Participants completed a loss aversion task consisting of forced binary choices between a monetary gamble and a riskless choice without gain or loss. We found a reduced loss aversion in participants with higher negative symptoms. In addition, risk aversion was reduced in participants with higher hypomania and negative symptoms compared to low hypomania/negative symptoms. This study adds to the understanding of underlying psychological mechanisms of loss and risk aversion. Given the partially opposing nature of hypomania and negative symptoms, further work is needed to examine whether they affect loss and risk aversion via dissociable mechanisms.

On rational behavior in multi-attribute riskless choice

We theoretically compare and contrast two commonly used types of choice strategies in a riskless, multi-attribute setting: (1) the win-win (or Pareto improving) strategy, and (2) the tradeoff strategy. Both strategies can be used and are used in Multiple Criteria Decision Making theory and practice. In the win-win strategy, consumers (or decision-makers) consider, which goods they want to add to their basket. In the tradeoff strategy consumers make pairwise choices between different (efficient) baskets, where they have to give up in some goods to gain in other goods.We postulate a choice model based on standard assumptions in economics/behavioral decision theory. The key underlying theoretical assumptions in our choice model are increasing and concave single dimensional value functions with decreasing marginal values (win-win setting) and the Tversky–Kahneman reference-dependent model of choice with loss aversion (tradeoff setting). The multi-attribute value function is assumed additive and separable. We study the decision-maker's consistency with our theory in both strategies. The perspective is that of an outside observer (an analyst). The basket is filled either with different or identical goods. We compare and contrast the win-win and tradeoff strategies and draw conclusions for the development of our field. We use an empirical experiment to motivate our considerations.

Pitfalls of judgment during the COVID-19 pandemic

Pitfalls of judgment during the COVID-19 pandemic

How do we close the intention–behavior gap?

How do we close the intention–behavior gap?

When Risk Is Weird: Unexplained Transaction Features Lower Valuations

We define transactions as weird when they include unexplained features, that is, features not implicitly, explicitly, or self-evidently justified, and propose that people are averse to weird transactions. In six experiments, we show that risky options used in previous research paradigms often attained uncertainty via adding an unexplained transaction feature (e.g., purchasing a coin flip or lottery), and behavior that appears to reflect risk aversion could instead reflect an aversion to weird transactions. Specifically, willingness to pay drops just as much when adding risk to a transaction as when adding unexplained features. Holding transaction features constant, adding additional risk does not further reduce willingness to pay. We interpret our work as generalizing ambiguity aversion to riskless choice. The online supplement is available at https://doi.org/10.1287/mnsc.2017.2868 and http://osf.io/fzjuw . This paper was accepted by Yuval Rottenstreich, judgment and decision making.

Reactivation of associative structure specific outcome responses during prospective evaluation in reward-based choices

Before making a reward-based choice, we must evaluate each option. Some theories propose that prospective evaluation involves a reactivation of the neural response to the outcome. Others propose that it calls upon a response pattern that is specific to each underlying associative structure. We hypothesize that these views are reconcilable: during prospective evaluation, offers reactivate neural responses to outcomes that are unique to each associative structure; when the outcome occurs, this pattern is activated, simultaneously, with a general response to the reward. We recorded single-units from macaque orbitofrontal cortex (Area 13) in a riskless choice task with interleaved described and experienced offer trials. Here we report that neural activations to offers and their outcomes overlap, as do neural activations to the outcomes on the two trial types. Neural activations to experienced and described offers are unrelated even though they predict the same outcomes. Our reactivation theory parsimoniously explains these results.

The adaptive decision-making, risky decision, and decision-making style of Internet gaming disorder

BackgroundPersistent gaming, despite acknowledgment of its negative consequences, is a major criterion for individuals with Internet gaming disorder (IGD). This study evaluated the adaptive decision-making, risky decision, and decision-making style of individuals with IGD. MethodsWe recruited 87 individuals with IGD and 87 without IGD (matched controls). All participants underwent an interview based on the Diagnostic and Statistical Manual of Mental Disorders (5th Edition) diagnostic criteria for IGD and completed an adaptive decision-making task; the Preference for Intuition and Deliberation Scale, Chen Internet Addiction Scale, and Barratt Impulsivity Scale were also assessed on the basis of the information from the diagnostic interviews. ResultsThe results demonstrated that the participants in both groups tend to make more risky choices in advantage trials where their expected value (EV) was more favorable than those of the riskless choice. The tendency to make a risky choice in advantage trials was stronger among IGD group than that among controls. Participants of both groups made more risky choices in the loss domain, a risky option to loss more versus sure loss option, than they did in the gain domain, a risky option to gain more versus sure gain. Furthermore, the participants with IGD made more risky choices in the gain domain than did the controls. Participants with IGD showed higher and lower preferences for intuitive and deliberative decision-making styles, respectively, than controls and their preferences for intuition and deliberation were positively and negatively associated with IGD severity, respectively. ConclusionsThese results suggested that individuals with IGD have elevated EV sensitivity for decision-making. However, they demonstrated risky preferences in the gain domain and preferred an intuitive rather than deliberative decision-making style. This might explain why they continue Internet gaming despite negative consequences. Thus, therapists should focus more on decision-making styles and promote deliberative thinking processes to mitigate the long-term negative consequences of IGD.

Mathematics self-confidence and the “prepayment effect” in riskless choices

We extend the analysis of a riskless choice experiment reported recently by Hochman et al. (2014). Participants select from among sets of standard playing cards valued by a simple formula. In some sessions, participants are given a prepayment associated with some of the cards, which need not be the earnings-maximizing ones. Hochman et al. (2014) find that participants choose an earnings-maximizing card less frequently when another card is prepaid. We replicate this result under the original instructions, but not with instructions which explain the payment process more explicitly. Participants who state they do not consider themselves good at mathematics make earnings-maximizing choices much less frequently overall, but those who express self-confidence in mathematics drive the treatment effect. The results suggest that even when comparisons among choices require only simple quantitative reasoning steps, market designers and regulators may need to pay close attention to how the terms of offers are expressed, explained, and implemented.

Satisfaction and uncertainty in car-sharing decisions: An integration of hybrid choice and random regret-based models

Car-sharing systems have attracted increasingly attention as one of several sustainable transportation systems. After joining a car-sharing organization, people can use a shared-car. Because sharing a car involves other members, there is some inherent uncertainty that originates from the possible non-availability of the shared-car. This uncertainty may trigger people to apply decision-making mechanisms other than the maximization of expected utility. In addition, variable satisfaction with current mobility options may affect individuals’ decisions differently. Such uncertainty and satisfaction associated with car-sharing decisions have been largely ignored in previous studies. The present study is designed to examine the effects of latent satisfaction with current mobility options and uncertainty underlying car-sharing decisions. A random-regret minimization-based hybrid choice model is proposed to simultaneously estimate these effects. The model allows investigating car-sharing decisions in both risky and riskless choice contexts. The parameters are estimated based on stated choice data using a Bayesian D-efficient optimal design. The results show that satisfaction significantly affects the car-sharing decision, and that car availability has a significant effect on the likelihood of joining a car-sharing organization.

An Experimental Comparison of Risky and Riskless Choice—Limitations of Prospect Theory and Expected Utility Theory

Prospect theory, used descriptively for decisions under both risk and certainty, presumes concave utility over gains and convex utility over losses; a pattern widely seen in lottery tasks. Although such discontinuous gain-loss reference-dependence is also used to model riskless choices, only limited empirical evidence supports this use. In incentive-compatible experiments, we find that gain-loss reflection effects are not observed under riskless choice as predicted by prospect theory, even while in the same subjects gain-loss reflection effects are observed under risk. Our empirical results challenge the application of choice models across both risky and riskless domains. (JEL C91, D12, D81)

Canonical Riskless Choice Over Bundles: Aint No Reference Point Here

Prospect Theory (Kahneman and Tversky 1979), one of the most prominent models for valuation of goods and money, presumes that people have convex utility over gains and concave utility over losses; a discontinuity at something like the current wealth level or reference point. This reflects a behavioral pattern confirmed in hundreds of experimental studies where in lottery tasks people show decreasing marginal utility over gains (risk aversion) and increasing marginal utility (risk seeking) over losses relative to this ?reference?. Although it is widely assumed that a reference point is also required to describe riskless choices made over bundles of goods, there is less empirical evidence for this claim. In this paper, using incentive-compatible experimental methods, we challenge the generality of this assumption. We find that in riskless choice over bundles of goods in a canonical budget set experiment, gain-loss asymmetries are not observed even while in interleaved lottery tasks the reference point is observed, in the same subjects. Our results suggest a discontinuity between the value functions inferred from choices over standard lotteries and the utility functions inferred from indifference curves in riskless choice.

Reference point effects in riskless choice without loss aversion.

Numerous studies have demonstrated that preferences among options in riskless choice are often influenced by reference points. That is, an existing reference level or status quo can bias preferences toward new alternatives. Reference-dependent effects have typically been attributed to loss aversion (Tversky & Kahneman, 1991). The key idea is that when an option is being considered, an individual assesses the advantages and disadvantages of that option along each attribute with respect to the reference point. Disadvantages (losses) are weighted more than advantages (gains) in the decision process. This research provides new experimental evidence that 3 standard referencedependent effects arise in a low-level perceptual decision task with nonhedonic stimuli. This casts doubt on explanations such as loss aversion, which are limited to high-level decisions with hedonic stimuli, and indicates that reference-dependent effects may be amenable to a general explanation at the level of the basic decision process.

Self–other decision making and loss aversion

In eight studies, we tested the prediction that making choices for others involves less loss aversion than making choices for the self. We found that loss aversion is significantly lessened among people choosing for others in scenarios describing riskless choice (Study 1), gambling (Studies 2 and 3), and social aspects of life, such as likeably and status (Studies 4a–e). Moreover, we found this pattern in relatively realistic conditions where people are rewarded for making desirable (i.e., profitable) choices for others (Study 2), when the other for whom a choice is made is physically present (Study 3), and when real money is at stake (Studies 2 and 3). Finally, we found loss aversion is moderated when factors associated with self–other differences in decision making are taken into account, such as decision makers’ construal level (Study 4a), regulatory focus (Study 4b), degree of information seeking (Study 4c), omission bias (Study 4d), and power (Study 4e).

Leader‐driven distortion of probability and payoff information affects choices between risky prospects

AbstractResearch indicating that decision makers often distort new information to favor nascent preferences has focused primarily on riskless choice rather than risky choice. In addition, the critical assumption that information distortion mediates the link between the initially preferred alternative and the final choice has not been tested in a compelling manner. In an experiment designed to fill these gaps, participants made six choices involving pairs of hypothetical three‐outcome monetary gambles. We manipulated initial preferences by varying the order in which gamble features were presented. Multilevel regressions indicated that participants distorted their evaluations of precise probabilities and payoffs in the direction of their emerging preferences and that they used their biased evaluations to update those preferences. As expected, information distortion mediated the effect of initial preferences on final choices and final preference strength. In a follow‐up experiment, we compared a standard measure of information distortion (based on comparisons to mean ratings in a no‐choice control task) to a more personalized measure (based on participants' own ratings in the control task) and found the mean‐based measure to be superior for the probability and payoff information in question. Other findings in Experiment 2 corroborated the results of Experiment 1. In both studies, the distortion of quantitative inputs in a simple task highlights the non‐normative circularity of the choice process. Copyright © 2010 John Wiley & Sons, Ltd.

Stochastic User Equilibrium and Value-of-time Analysis with Reference-dependent Route Choice

Reference-dependent theory of riskless choice assumes that carriers of utility are gains and losses relative to a reference point and that individuals are loss averse, i.e. losses are valued more highly than gains. Reference-dependent money measures of the attributes in the utility functions are defined: the willingness to pay, the willingness to accept, the equivalent gain and the equivalent loss. Experimental evidence has been provided which supports reference-dependent theory for riskless route choice. A natural next development is the application of the theory to network analysis. This is an under-researched area. In the paper, the multi-class reference-dependent stochastic user equilibrium (RDSUE) problem under the status-quo assumption for the reference point is formulated. Conditions that guarantee the properties of existence and uniqueness of RDSUE are considered. The property of reflexivity of RDSUE is also considered to verify if the equilibrium is maintained when the reference point is updated to the new status quo. A methodology for the reference-dependent valuation of travel time changes over a network is provided. Data from a survey are used to estimate a reference-dependent route choice model and the attendant reference-dependent values of time. The estimation results are in agreement with econometric literature supporting loss aversion. The application to the case of a town bypass with toll illustrates the reference-dependent approach to network analysis and the implications of its use for policy making. It is shown that, if the interventions on the supply are phased, it is possible to exploit loss aversion and obtain advantages in terms of toll revenues and travel time spent.

Power and loss aversion

Four experiments tested the prediction that power reduces loss aversion by increasing the anticipated value of gains and shrinking the negative anticipated value of losses. Experiment 1 provided initial support for the prediction that those in power are less loss averse by replicating a classic paradigm of loss aversion in riskless choice and demonstrating moderation by power. Experiments 2 and 3 expanded on this finding by breaking apart the components of loss aversion to determine how power may reduce it: via gains, losses, or both. Across two scenarios and two different measures of anticipated value, power reduced the anticipated threat associated with a loss. However, the prediction that power increases the anticipated value of gains was not supported. Finally, Experiment 4 replicated the results of Experiments 2 and 3 in the context of a choice with real consequences for the participants. Implications of these findings are discussed.

Revised behavioural models for riskless consumer choice

Behavioural models suggest that the value of an alternative is determined by the combination of the context-free effects and the context-dependent effects. The former refer to the absolute position of the choice set and are independent of the context frame or other alternatives. On the other hand, the latter are measured by the relative position of other alternatives and may be influenced by the context effects. Although many behavioural models have been proposed based on prospect theory and the componential context model to capture consumer choice behaviour, they predict inconsistent results in some situations. In this paper, five experiments are used to show the inconsistency between the above two models. Then, two revised behavioural models are proposed to modify prospect theory and the componential context model for releasing that inconsistency.