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Biased samples not mode of presentation: Re-examining the apparent underweighting of rare events in experience-based choice

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  • Rakow, Tim
  • Demes, Kali A.
  • Newell, Ben R.

Abstract

Most experimental investigations of risky choice provide participants with a description of the probabilities and outcomes for each option, and observe that small probabilities are overweighted. However, when payoffs are learned from repeated experience of outcomes (as in many real-world decisions), different patterns of choice are observed--consistent with underweighting rare events. We re-examined this phenomenon to determine whether biased sampling and recency effects in experience-based choice could account for this description-experience gap. Two hundred and forty paid participants made choices for 12 pairs of simple gambles. In the objective description condition, probabilities and outcomes were specified. In the free sampling condition, participants observed repeated plays of each gamble before choosing. Participants in four yoked conditions received the same information as the free sampling participants--either described or experienced. Differences between objective description and free sampling were consistent with underweighting rare events in experience-based choice. However, consistent with a biased sampling account, patterns of choice in the yoked conditions barely differed from the free sampling condition: given identical information, presentation mode has no effect. Recency effects in choice occurred only when outcomes were actively sampled, and were unaffected by working memory capacity. The absence of recency for passive observation implies actor-observer differences in forming expectations or testing hypotheses. The results provide no support for the claim that decisions from description and decisions from experience require separate descriptive theories.

Suggested Citation

  • Rakow, Tim & Demes, Kali A. & Newell, Ben R., 2008. "Biased samples not mode of presentation: Re-examining the apparent underweighting of rare events in experience-based choice," Organizational Behavior and Human Decision Processes, Elsevier, vol. 106(2), pages 168-179, July.
    • Handle: RePEc:eee:jobhdp:v:106:y:2008:i:2:p:168-179
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    Cited by:

    1. Robin Cubitt & Orestis Kopsacheilis & Chris Starmer, 2022. "An inquiry into the nature and causes of the Description - Experience gap," Journal of Risk and Uncertainty, Springer, vol. 65(2), pages 105-137, October.
    2. Jordan Tong & Daniel Feiler, 2017. "A Behavioral Model of Forecasting: Naive Statistics on Mental Samples," Management Science, INFORMS, vol. 63(11), pages 3609-3627, November.
    3. Mohammed Abdellaoui & Olivier L'Haridon & Corina Paraschiv, 2011. "Experienced vs. Described Uncertainty: Do We Need Two Prospect Theory Specifications?," Management Science, INFORMS, vol. 57(10), pages 1879-1895, October.
    4. Michael P. Haselhuhn & Devin G. Pope & Maurice E. Schweitzer & Peter Fishman, 2012. "The Impact of Personal Experience on Behavior: Evidence from Video-Rental Fines," Management Science, INFORMS, vol. 58(1), pages 52-61, January.
    5. Nathaniel J. S. Ashby, 2017. "Numeracy predicts preference consistency: Deliberative search heuristics increase choice consistency for choices from description and experience," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 12(2), pages 128-139, March.
    6. Farid Anvari & Stephan Billinger & Pantelis P. Analytis & Vithor Rosa Franco & Davide Marchiori, 2024. "Testing the convergent validity, domain generality, and temporal stability of selected measures of people’s tendency to explore," Nature Communications, Nature, vol. 15(1), pages 1-23, December.
    7. Orestis Kopsacheilis, 2018. "The role of information search and its influence on risk preferences," Theory and Decision, Springer, vol. 84(3), pages 311-339, May.
    8. Martin Wallmeier, 2011. "Beyond payoff diagrams: how to present risk and return characteristics of structured products," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 25(3), pages 313-338, September.
    9. Shereen J. Chaudhry & Michael Hand & Howard Kunreuther, 2020. "Broad bracketing for low probability events," Journal of Risk and Uncertainty, Springer, vol. 61(3), pages 211-244, December.
    10. Liat Hadar & Craig R. Fox, 2009. "Information asymmetry in decision from description versus decision from experience," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 4(4), pages 317-325, June.
    11. repec:cup:judgdm:v:12:y:2017:i:2:p:128-139 is not listed on IDEAS
    12. Barron, Greg & Ursino, Giovanni, 2013. "Underweighting rare events in experience based decisions: Beyond sample error," Journal of Economic Psychology, Elsevier, vol. 39(C), pages 278-286.
    13. Camilleri, Adrian R. & Newell, Ben R., 2019. "Better calibration when predicting from experience (rather than description)," Organizational Behavior and Human Decision Processes, Elsevier, vol. 150(C), pages 62-82.
    14. Adrian R. Camilleri & Ben R. Newell, 2009. "The role of representation in experience-based choice," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 4(7), pages 518-529, December.
    15. repec:cup:judgdm:v:4:y:2009:i:7:p:518-529 is not listed on IDEAS
    16. Roth, Alvin E. & Herzog, Stefan & Hau, Robin & Hertwig, Ralph & Erev, Ido & Ert, Eyal & Haruvy, Ernan & Stewart, Terrence & West, Robert & Lebiere, Christian, 2009. "A Choice Prediction Competition: Choices From Experience and From Description," Scholarly Articles 5343169, Harvard University Department of Economics.
    17. Ramirez, Patrick A. & Levine, Daniel S., 2013. "A review of the certainty effect and influence of information processing," Economics Discussion Papers 2013-47, Kiel Institute for the World Economy (IfW Kiel).
    18. repec:cup:judgdm:v:17:y:2022:i:5:p:1146-1175 is not listed on IDEAS
    19. repec:jdm:journl:v:17:y:2022:i:5:p:1146-1175 is not listed on IDEAS
    20. repec:cup:judgdm:v:4:y:2009:i:4:p:317-325 is not listed on IDEAS

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