Information search patterns in risk judgment and in risky choices
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Information search patterns in risk judgment and in risky choices. Agata Michalaszek Warsaw School of Social Psychology. Expectation Models. rational choice is based on max EV logarithmic function of utility ( Bernoulli, 1738, 1954 ) objective value was replaced with subjectvie utility

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Agata Michalaszek Warsaw School of Social Psychology

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Agata michalaszek warsaw school of social psychology

Information search patterns in risk judgment and in risky choices

Agata Michalaszek

Warsaw School of Social Psychology


Expectation models

Expectation Models

  • rational choice is based on max EV

  • logarithmic function of utility (Bernoulli, 1738, 1954)

  • objective value was replaced with subjectvie utility

  • people violate EU theory (Allais, 1953)

    and common ratio rule


Expectation models nonlinear functions of value and p

Expectation Models – nonlinear functions of value and p

  • Prospect Theory – value of each outcome is weighted by a decision weight ╥(p) – nonlinear function of probability (Kahneman and Tversky, 1979)

  • CPT - the separable decision weights was replaced with cumulative (rank-dependent) decision weights(Kahneman and Tversky, 1992)


Expectation models the same rule

Expectation Models – the same rule

  • all those models (i.e. extensions of EV):

    EV, EU, SEU, OPT, CPT contains the same rule – people choose ‘the best’ alternative by maximizing the expected value

Is this a single way to look for a solution to inconsistencies between the EV rule and actual behavior?


Two approaches

Two approaches

Extensions of EV rule

i.e. nonlinear v and p functions

Investigation of the way in which people think

  • e.g., how they acquire information?

  • Information board (Payne, 1976)


Information se archi ng due to ev

Information searching due to EV

wl(pl) *l(loss)+wg(pg)*g(gain)

(e.g. Coombs and Lehner, 1984; Jia and Dyer, 1996; Jia, Dyer and Buttler, 1999; Luce and E.U. Weber, 1986; Sarin and M. Weber, 1993)

  • probabilities and payoffs are combined multiplicatively

  • each alternative is evaluated separately (global evaluation)


Pattern of information se arch ing due to ev

Situation 1

payoff1

p1

payoff2

p2

payoffi

pi

Situation 2

payoff1

p1

payoff2

p2

payoffi

pi

Pattern of information searching due to EV

Each alternative is evaluated separately.


Pattern of information se arch ing due to d im

Situation 1

payoff1

p1

payoff2

p2

payoffi

pi

Situation 2

payoff1

p1

payoff2

p2

payoffi

pi

Pattern of information searchingdue to DIM

Each dimension is evaluated separately. Dmensional Model – Payne, 1976


Two patterns of information se arch ing

Situation 1

payoff1

p1

payoff2

p2

payoffi

pi

Situation 2

payoff1

p1

payoff2

p2

payoffi

pi

Two patterns of information searching

DIM

EV


Main research question

Main research question

Do peopleuse:

the multiplicative or the dimensional pattern

of information acquisition,

while making risky choices ?


Risk judgement and choice the same or not

Risk judgement and choice: the same or not

  • another important issue: risk judgement and choice

  • the same or not?

  • no risk concept in EV models

  • risk attitudes follow from v and p functions


Theories of risk judgement

Theories of risk judgement

risk aversion for gains

risk seeking for losses


R v models markowitz

R–V Models – Markowitz:

  • decisions are based on both expected return and its uncertainty or variability (related to risk)(Markowitz, 1959)

  • risk is associated with the dispersion of the random variable

  • risk as indepedent concept

    WTP(x) = f {V(x), R(x)}


Risk judgement choice

Risk judgement ≠ Choice

  • developed by Coombs

  • no clear answer


Research questions

Research Questions

Risk judgment

Choice

Do peopleuse the multiplicative or the dimensional pattern of information acquisition

Relative importance of positive and negative dimensions

Relative importance of values and probabilities

  • Do peopleuse the multiplicative or the dimensional pattern of information acquisition

  • Relative importance of positive and negative dimensions

  • Relative importance of values and probabilities


Experiment design

Experiment – Design

  • Subjects:

  • 120 respondents

  • Measure of perceived risk

  • subjects rated riskiness on an 11-point scale (from 0 ‘not risky at all’ to 10 ‘extremely risky’)

  • Measure of decision making (choice)

  • subjects chose one of three options

0

10

a) option A b) option B c) option C


Experiment design scenarios

Experiment – Design: scenarios

  • respondents were presented with 7 differentrisky situations related to financial risk, health hazards, gambling, etc.

  • everysituation consisted of 3 alternative options (A, B, C)

  • each option consisted of 4 possible outcomes - 2 losses and 2 gains and propabilities of those outcomes

  • participants could disclose as much detailed information about the options as necessary to judge their riskiness and to choose one of them


Experiment design mouselabweb

Experiment – Design: MouseLabWEB

  • the MouseLabWEB idea was to monitor the information acquisition process of decision making

  • information is hidden behind boxes – to access the information, the decision maker moves the mouse pointer over the box on the screen

http://www.mouselabweb.org/


Results

Results

number of box

average – 12 information

after 6th information less systematic patterns

checked first 6 steps


Results information search patterns risk judgement

Results: information search patterns – Risk judgement

69,9%-due todimensional model

4,2%-due to multiplicative model

26% - without any model


Results information search patterns choice

Results: information search patterns - Choice

  • 67,5%-due todimensional model

  • 1,8%-due to multiplicative model

  • 30,8% - without any model


Results information search patterns

Risk judgement

69,9%-due todimensional model

4,2%-due to multiplicative model

26% - without any model

Choice

67,5%-due todimensional model

1,8%-due to multiplicative model

30,8% - without any model

Results: information search patterns


Results positive negative outcomes

Results: positive/negative outcomes

  • positive/negative on top – biased

  • 2 display orders:

  • control: the same amount of information

    the same ratio pos/neg

pos payoff … … … neg payoff

neg payoff … … … pos payoff

vs


Results positive negative outcomes1

Risk judgement

ratio pos/neg

M=0,95

amount of positive information M=7,04

amount of negative information M=7,62

Choice

ratio pos/neg M=0,96

amount of positive information M=6,87

amount of negative information M=7,50

Results: positive/negative outcomes


Results value or p

Risk judgement

ratio value/p

M=1,30

Choice

ratio value/p M=1,23

Results: value or p

value

ratio =

p

value

= 1 < 1 > 1

p


Results value or p1

Risk judgement

41% amount value=p

28,1% amount value>p

16,6% only value

11,2% amount value<p

3,1% only p

Choice

47% amount value=p

24,8% amount value>p

12% only value

12,8% amount value<p

3,5% only p

Results: value or p


Results value or p for different situations

Results: value or p for different situations

  • ratio value/p different for different situations

  • more p is considered for financial risk: investmenst and gambles

  • more value is considered for health hazards and extreme sports

F(1,49)=0.117; p=.734

F(1,53)=5,475; p=.023

F(1,56)=0.612; p=.437


Conclusions

Conclusions:

  • the majority of information search pattern is due to DIM model (about 70%)

  • no differences in amount of considered infrmation between positive and negative outcomes

  • p more frequent for precise information (‘experiments’)

    values more frequentfor less precise information (‘natural setting’)


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