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The role of information search and its influence on risk preferences

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  • Orestis Kopsacheilis

    (University of Nottingham)

Abstract

According to the ‘Description–Experience gap’ (DE gap), when people are provided with the descriptions of risky prospects they make choices as if they overweight the probability of rare events; but when making decisions from experience after exploring the prospects’ properties, they behave as if they underweight such probability. This study revisits this discrepancy while focusing on information-search in decisions from experience. We report findings from a lab-experiment with three treatments: a standard version of decisions from description and two versions of decisions from experience: with and without a ‘history table’ recording previously sampled events. We find that people sample more from lotteries with rarer events. The history table proved influential; in its absence search is more responsive to cues such as a lottery’s variance while in its presence the cue that stands out is the table’s maximum capacity. Our analysis of risky choices captures a significant DE gap which is mitigated by the presence of the history table. We elicit probability weighting functions at the individual level and report that subjects overweight rare events in experience but less so than in description. Finally, we report a measure that allows us to compare the type of DE gap found in studies using choice patterns with that inferred through valuation and find that the phenomenon is similar but not identical across the two methods.

Suggested Citation

  • 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.
    • Handle: RePEc:kap:theord:v:84:y:2018:i:3:d:10.1007_s11238-017-9623-y
    DOI: 10.1007/s11238-017-9623-y
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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. repec:cup:judgdm:v:17:y:2022:i:5:p:1146-1175 is not listed on IDEAS
    3. repec:jdm:journl:v:17:y:2022:i:5:p:1146-1175 is not listed on IDEAS
    4. Ilke Aydogan, 2021. "Prior Beliefs and Ambiguity Attitudes in Decision from Experience," Management Science, INFORMS, vol. 67(11), pages 6934-6945, November.

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