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Do People Make Decisions Under Risk Based on Ignorance? An Empirical Test of the Priority Heuristic against Cumulative Prospect Theory

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Listed:
  • Andreas Glöckner

    (Max Planck Institute for Research on Collective Goods, Bonn)

  • Tilmann Betsch

    (University of Erfurt)

Abstract

Brandstätter, Gigerenzer and Hertwig (2006) put forward the priority heuristic (PH) as a fast and frugal heuristic for decisions under risk. According to the PH, individuals do not make trade-offs between gains and probabilities, as proposed by expected utility models such as cumulative prospect theory (CPT), but use information in a non-compensatory manner and ignore information. We conducted three studies to test the PH empirically by analyzing individual choice patterns, decision times and information search parameters in diagnostic decision tasks. Results on all three dependent variables conflict with the predictions of the PH and can be better explained by the CPT. The predictive accuracy of the PH was high for decision tasks in which the predic-tions align with the predictions of the CPT but very low for decision tasks in which this was not the case. The findings indicate that earlier results supporting the PH might have been caused by the selection of decision tasks that were not diagnostic for the PH as compared to CPT.

Suggested Citation

  • Andreas Glöckner & Tilmann Betsch, 2008. "Do People Make Decisions Under Risk Based on Ignorance? An Empirical Test of the Priority Heuristic against Cumulative Prospect Theory," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2008_05, Max Planck Institute for Research on Collective Goods.
    • Handle: RePEc:mpg:wpaper:2008_5
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    Cited by:

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    4. Auriol, Emmanuelle & Mesnard, Alice & Perrault, Tiffanie, 2023. "Weeding out the dealers? The economics of cannabis legalization," Journal of Economic Behavior & Organization, Elsevier, vol. 216(C), pages 62-101.
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    6. Nathaniel J. S. Ashby & Stephan Dickert & Andreas Glockner, 2012. "Focusing on what you own: Biased information uptake due to ownership," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 7(3), pages 254-267, May.
    7. Kim Kaivanto, 2014. "The Effect of Decentralized Behavioral Decision Making on System‐Level Risk," Risk Analysis, John Wiley & Sons, vol. 34(12), pages 2121-2142, December.
    8. Andreas Glockner & Benjamin E. Hilbig, 2011. "Editorial: Methodology in judgment and decision making research," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 6(8), pages 705-710, December.
    9. Ivan Moscati, 2022. "Behavioral and heuristic models are as-if models too — and that’s ok," BAFFI CAREFIN Working Papers 22177, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    10. Andreas Glöckner & Tilmann Betsch, 2008. "Multiple-Reason Decision Making Based on Automatic Processing," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2008_12, Max Planck Institute for Research on Collective Goods.
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    12. Michael H. Birnbaum & Jeffrey P. Bahra, 2012. "Testing transitivity of preferences using linked designs," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 7(5), pages 524-567, September.
    13. repec:cup:judgdm:v:6:y:2011:i:8:p:705-710 is not listed on IDEAS
    14. Clintin P. Davis-Stober & Nicholas Brown, 2011. "A shift in strategy or "error"? Strategy classification over multiple stochastic specifications," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 6(8), pages 800-813, December.
    15. Venkatraman, Vinod & Payne, John W. & Huettel, Scott A., 2014. "An overall probability of winning heuristic for complex risky decisions: Choice and eye fixation evidence," Organizational Behavior and Human Decision Processes, Elsevier, vol. 125(2), pages 73-87.
    16. John R. Doyle & Catherine H. Chen & Krishna Savani, 2011. "New designs for research in delay discounting," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 6(8), pages 759-770, December.
    17. Michael H. Birnbaum & Jeffrey P. Bahra, 2012. "Separating response variability from structural inconsistency to test models of risky decision making," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 7(4), pages 402-426, July.
    18. repec:cup:judgdm:v:7:y:2012:i:5:p:524-567 is not listed on IDEAS
    19. Alexander Morell & Andreas Glöckner & Emanuel Towfigh, 2009. "Sticky Rebates: Rollback Rebates Induce Non-Rational Loyalty in Consumers," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2009_23, Max Planck Institute for Research on Collective Goods, revised Feb 2013.
    20. Auriol, Emmanuelle & Mesnard, Alice & Perrault, Tiffanie, 2019. "Defeating Crime? An Economic Analysis of Cannabis Legalization Policies," CEPR Discussion Papers 13814, C.E.P.R. Discussion Papers.
    21. Charles-Cadogan, G., 2018. "Losses loom larger than gains and reference dependent preferences in Bernoulli’s utility function," Journal of Economic Behavior & Organization, Elsevier, vol. 154(C), pages 220-237.
    22. repec:cup:judgdm:v:7:y:2012:i:3:p:254-267 is not listed on IDEAS
    23. Tomasz Potocki, 2012. "Cumulative Prospect Theory as a model of economic rationality," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 31.
    24. Glenn W. Harrison & J. Todd Swarthout, 2016. "Cumulative Prospect Theory in the Laboratory: A Reconsideration," Experimental Economics Center Working Paper Series 2016-04, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University.
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    Keywords

    Decision Strategy; Fast and Frugal Heuristics; Bounded Rationality; Decision Latency; Process Tracing; Cumulative Prospect Theory;
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