1. Agata Michalaszek Warsaw School of Social Psychology Information search patterns in risk judgment and in risky choices

2. 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

3. 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)

4. 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?

5. 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)

6. Information searching due to EV w l (p l ) *  l (loss) + w g (p g ) *  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)

7. Pattern of information searching due to EV Situation 1 payoff 1 p 1 payoff 2 p 2 … payoff i p i Situation 2 payoff 1 p 1 payoff 2 p 2 … payoff i p i Each alternative is evaluated separately.

8. Pattern of information searching due to DIM Situation 1 payoff 1 p 1 payoff 2 p 2 … payoff i p i Situation 2 payoff 1 p 1 payoff 2 p 2 … payoff i p i Each dimension is evaluated separately. Dmensional Model – Payne, 1976

9. Two patterns of information searching Situation 1 payoff 1 p 1 payoff 2 p 2 … payoff i p i Situation 2 payoff 1 p 1 payoff 2 p 2 … payoff i p i EV DIM

10. Main research question Do people use: the multiplicative or the dimensional pattern of information acquisition, while making risky choices ?

11. 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

12. Theories of risk judgement risk seeking for losses risk aversion for gains

13. 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)}

14. Risk judgement ≠ Choice developed by Coombs no clear answer

15. Research Questions Risk judgment Do people use the multiplicative or the dimensional pattern of information acquisition Relative importance of positive and negative dimensions Relative importance of values and probabilities Choice Do people use the multiplicative or the dimensional pattern of information acquisition Relative importance of positive and negative dimensions Relative importance of values and probabilities

16. 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 010 a) option A b) option B c) option C

17. Experiment – Design: scenarios respondents were presented with 7 different risky situations related to financial risk, health hazards, gambling, etc. every situation 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

18. 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 ABC max gain p max gain gain p gain loss p loss max loss P max loss http://www.mouselabweb.org/

19. Results number of box average – 12 information after 6th information less systematic patterns checked first 6 steps ABC max gain 1917 p max gain 21018 gain 31119 p gain 41220 loss 51321 p loss 61422 max loss 71523 P max loss 81624

20. Results: information search patterns – Risk judgement 69,9% - due to dimensional model 4,2% - due to multiplicative model 26% - without any model

21. Results: information search patterns - Choice 67,5% - due to dimensional model 1,8% - due to multiplicative model 30,8% - without any model

22. Results: information search patterns Risk judgement 69,9% - due to dimensional model 4,2% - due to multiplicative model 26% - without any model Choice 67,5% - due to dimensional model 1,8% - due to multiplicative model 30,8% - without any model

23. 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

24. Results: positive/negative outcomes 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

25. Results: value or p Risk judgement ratio value/p M=1,30 Choice ratio value/p M=1,23 ratio = value p p = 1 1

26. Results: value or p 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

27. 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 (1,56) =0.612; p=.437 F (1,53) =5,475; p=.023 F (1,49) =0.117; p=.734

28. 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 frequent for less precise information (‘natural setting’)