Betting the Farm
Walter Herbranson & Julia Schroeder
Journal of Comparative Psychology, February 2010, Pages 1-13
Abstract:
The "Monty Hall Dilemma" (MHD) is a well known probability puzzle in which a player tries to guess which of three doors conceals a desirable prize. After an initial choice is made, one of the remaining doors is opened, revealing no prize. The player is then given the option of staying with their initial guess or switching to the other unopened door. Most people opt to stay with their initial guess, despite the fact that switching doubles the probability of winning. A series of experiments investigated whether pigeons (Columba livia), like most humans, would fail to maximize their expected winnings in a version of the MHD. Birds completed multiple trials of a standard MHD, with the three response keys in an operant chamber serving as the three doors and access to mixed grain as the prize. Across experiments, the probability of gaining reinforcement for switching and staying was manipulated, and birds adjusted their probability of switching and staying to approximate the optimal strategy. Replication of the procedure with human participants showed that humans failed to adopt optimal strategies, even with extensive training.
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Spike Lee, Norbert Schwarz, Danielle Taubman & Mengyuan Hou
Psychological Science, forthcoming
"Exposure to a mundane event (a sneezing person) related to a salient health threat (a flu pandemic) increased the perception of a substantively related risk (contracting a major disease) and shifted policy preferences from other current priorities (green jobs) to the production of flu vaccines. Moreover, the heightened perception of risk generalized to threats that have no substantive relationship with influenza (heart disease and dying from crime or accidents). Such generalization across hazards is assumed to reflect reliance on current feelings in intuitive risk assessment (Johnson & Tversky, 1983; Loewenstein et al., 2001). Debriefing suggested that people have no insight into these processes; they assume that exposure to a sneeze may influence their perception of flu risk, but not their perception of unrelated risks. Future research may fruitfully address the assumed affective mediation of the observed effects, their persistence over time, and the likely role of media attention to the hazard associated with the event, which was not manipulated in the present studies."
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Ena Inesi
Organizational Behavior and Human Decision Processes, forthcoming
Abstract:
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.
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Amygdala damage eliminates monetary loss aversion
Benedetto De Martino, Colin Camerer & Ralph Adolphs
Proceedings of the National Academy of Sciences, forthcoming
Abstract:
Losses are a possibility in many risky decisions, and organisms have evolved mechanisms to evaluate and avoid them. Laboratory and field evidence suggests that people often avoid risks with losses even when they might earn a substantially larger gain, a behavioral preference termed "loss aversion." The cautionary brake on behavior known to rely on the amygdala is a plausible candidate mechanism for loss aversion, yet evidence for this idea has so far not been found. We studied two rare individuals with focal bilateral amygdala lesions using a series of experimental economics tasks. To measure individual sensitivity to financial losses we asked participants to play a variety of monetary gambles with possible gains and losses. Although both participants retained a normal ability to respond to changes in the gambles' expected value and risk, they showed a dramatic reduction in loss aversion compared to matched controls. The findings suggest that the amygdala plays a key role in generating loss aversion by inhibiting actions with potentially deleterious outcomes.
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Sandeep Mishra & Martin Lalumière
Journal of Experimental Social Psychology, forthcoming
Abstract:
Risky behavior in humans is typically considered irrational, reckless, and maladaptive. Risk-sensitivity theory, however, suggests that risky behavior may be adaptive in some circumstances: Decision-makers should prefer high risk options in situations of high need, when safer, lower risk options are unlikely to meet those needs. This pattern of decision-making has been well established in the non-human animal literature, but little investigation has been conducted on humans. We demonstrate in a two-part experimental study that young men and women (n = 115) behave as predicted by risk-sensitivity theory, shifting from risk-aversion to risk-proneness in situations of high need. This shift occurred whether decisions were made from description or from experience, and was observed controlling for sex and individual differences in general risk-taking propensity. This study is the first ecologically-relevant demonstration of risk-sensitive decision-making in humans.
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Liviu Crisan, Simona Pana, Romana Vulturar, Renata Heilman, Raluca Szekely, Bogdan Druga, Nicolae Dragos & Andrei Miu
Social Cognitive and Affective Neuroscience, December 2009, Pages 399-408
Abstract:
Serotonin (5-HT) modulates emotional and cognitive functions such as fear conditioning (FC) and decision making. This study investigated the effects of a functional polymorphism in the regulatory region (5-HTTLPR) of the human 5-HT transporter (5-HTT) gene on observational FC, risk taking and susceptibility to framing in decision making under uncertainty, as well as multidimensional anxiety and autonomic control of the heart in healthy volunteers. The present results indicate that in comparison to the homozygotes for the long (l) version of 5-HTTLPR, the carriers of the short (s) version display enhanced observational FC, reduced financial risk taking and increased susceptibility to framing in economic decision making. We also found that s-carriers have increased trait anxiety due to threat in social evaluation, and ambiguous threat perception. In addition, s-carriers also show reduced autonomic control over the heart, and a pattern of reduced vagal tone and increased sympathetic activity in comparison to l-homozygotes. This is the first genetic study that identifies the association of a functional polymorphism in a key neurotransmitter-related gene with complex social-emotional and cognitive processes. The present set of results suggests an endophenotype of anxiety disorders, characterized by enhanced social learning of fear, impaired decision making and dysfunctional autonomic activity.
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Are Risk Preferences Stable Across Contexts? Evidence from Insurance Data
Levon Barseghyan, Jeffrey Prince & Joshua Teitelbaum
American Economic Review, forthcoming
Abstract:
Using a unique data set, we test whether households' deductible choices in auto and home insurance reflect stable risk preferences. Our test relies on a structural model that assumes households are objective expected utility maximizers and claims are generated by household-coverage specific Poisson processes. We find that the hypothesis of stable risk preferences is rejected by the data. Importantly, we rule out unobserved heterogeneity as a plausible explanation. Our analysis suggests that many households exhibit greater risk aversion in their home deductible choices than their auto deductible choices. We find that our results are robust to several alternative modeling assumptions.
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Monoamine Oxidase A Gene (MAOA) Associated with Attitude Towards Longshot Risks
Songfa Zhong, Salomon Israel, Hong Xue, Richard Ebstein & Soo Hong Chew
PLoS ONE, December 2009, e8516
Abstract:
Decision making often entails longshot risks involving a small chance of receiving a substantial outcome. People tend to be risk preferring (averse) when facing longshot risks involving significant gains (losses). This differentiation towards longshot risks underpins the markets for lottery as well as for insurance. Both lottery and insurance have emerged since ancient times and continue to play a useful role in the modern economy. In this study, we observe subjects' incentivized choices in a controlled laboratory setting, and investigate their association with a widely studied, promoter-region repeat functional polymorphism in monoamine oxidase A gene (MAOA). We find that subjects with the high activity (4-repeat) allele are characterized by a preference for the longshot lottery and also less insurance purchasing than subjects with the low activity (3-repeat) allele. This is the first result to link attitude towards longshot risks to a specific gene. It complements recent findings on the neurobiological basis of economic risk taking.
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Loss aversion in the eye and in the heart: The autonomic nervous system's responses to losses
Guy Hochman & Eldad Yechiam
Journal of Behavioral Decision Making, forthcoming
Abstract:
The common view in psychology and neuroscience is that losses loom larger than gains, leading to a negativity bias in behavioral responses and Autonomic Nervous System (ANS) activation. However, evidence has accumulated that in decisions under risk and uncertainty individuals often impart similar weights to negative and positive outcomes. We examine the role of the ANS in decisions under uncertainty, and its consistency with the behavioral responses. In three studies, we show that losses lead to heightened autonomic responses, compared to equivalent gains (as indicated by pupil dilation and increased heart rate) even in situations where the average decision maker exhibits no loss aversion. Moreover, in the studied tasks autonomic responses were not associated with risk taking propensities. These results are interpreted by the hypothesis that losses signal the subjective importance of global outcome patterns.
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Variability in Nucleus Accumbens Activity Mediates Age-Related Suboptimal Financial Risk Taking
Gregory Samanez-Larkin, Camelia Kuhnen, Daniel Yoo & Brian Knutson
Journal of Neuroscience, 27 January 2010, Pages 1426-1434
Abstract:
As human life expectancy continues to rise, financial decisions of aging investors may have an increasing impact on the global economy. In this study, we examined age differences in financial decisions across the adult life span by combining functional neuroimaging with a dynamic financial investment task. During the task, older adultsmademore suboptimal choices than younger adults when choosing risky assets. This age-related effect was mediated by a neural measure of temporal variability in nucleus accumbens activity. These findings reveal a novel neural mechanism by which aging may disrupt rational financial choice.
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Marwan Sinaceur, Melissa Thomas-Hunt, Margaret Neale, Olivia O'Neill & Christophe Haag
Personality and Social Psychology Bulletin, March 2010, Pages 423-437
Abstract:
We examined how the minority's perceived (i.e., not real) expertise affects group discussion and performance. In two experiments, participants were randomly assigned to interacting groups in which the minority faction was perceived as either expert or not. Groups performed a decision task that involved solving a murder mystery. Both experiments showed that minorities perceived as expert (vs. not perceived as expert) made majority individuals acquire more accurate private judgments after group discussion, although the public group decision was not more accurate. In parallel, perceived expertise made minority members change their own judgments less. Experiment 1 also showed that minorities' questioning behaviors mediated the effect of minorities' perceived expertise on majority members' private accuracy. Experiment 2 further showed that majority members' deeper processing was also a mediator. Thus, minorities with perceived expertise serve as a catalyst, increasing the quality of majority members' cognitions, but not their own.
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Erick Davidson & Brian Roe
Ohio State University Working Paper, September 2009
Abstract:
Professional poker players' behavior in high-stakes, televised tournaments is significantly more conservative than that prescribed by risk-neutral models of dynamic optimization for decisions to call or fold after final ‘river' bets. Had players adhered to a risk-neutral dynamically-optimal decision rule in these decisions they would have folded less than 10 percent of the hands played and experienced an increase in the share of chips at the table of 1.9 percent. In reality players folded significantly more often - more than 40 percent of the time - and experienced an average gain of only 1.3 percent. While the cost of this conservative play is not statistically significant, the players' reticence is surprising given that the median player in our sample spends $10,000 to enter the poker tournament, plays for a cash prize pool of nearly $1 million and has substantial experience playing poker. Several explanations may explain the conservative decisions, including probability weighting and players' overconfidence in being able to determine the strength of an opponent's cards. The implication of professionals in a high-stakes competition deviating from risk-neutral decision making is explored.
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Yuji Takano, Nobuaki Takahashi, Daisuke Tanaka & Naoyuki Hironaka
PLoS ONE, February 2010, e9368
Abstract:
In gambling situations, we found a paradoxical reinforcing effect of high-risk decision-making after repeated big monetary losses. The computerized version of the Iowa Gambling Task (Bechara et al., 2000), which contained six big loss cards in deck B', was conducted on normal healthy college students. The results indicated that the total number of selections from deck A' and deck B' decreased across trials. However, there was no decrease in selections from deck B'. Detailed analysis of the card selections revealed that some people persisted in selecting from the "risky" deck B' as the number of big losses increased. This tendency was prominent in self-rated deliberative people. However, they were implicitly impulsive, as revealed by the matching familiar figure test. These results suggest that the gap between explicit deliberation and implicit impulsivity drew them into pathological gambling.