Rare and Extreme Outcomes in Risky Choice

Alice Mason, Elliot A. Ludvig, Marcia L. Spetch, Christopher R. Madan

Research output: Contribution to journalArticlepeer-review

Abstract

Many real-world decisions involving rare events also involve extreme outcomes. Despite this confluence, decisions-from-experience research has only examined the impact of rarity and extremity in isolation. With rare events, people typically choose as if they underestimate the probability of a rare outcome happening. Separately, people typically overestimate the probability of an extreme outcome happening. Here, for the first time, we examine the confluence of these two biases in decisions-from-experience. In a between-groups behavioural experiment, we examine people’s risk preferences for rare extreme outcomes and for rare non-extreme outcomes. When outcomes are both rare and extreme, people’s risk preferences shift away from traditional risk patterns for rare events: they show reduced underweighting for events that are both rare and extreme. We simulate these results using a small-sample model of decision-making that accounts for both the underweighting of rare events and the overweighting of extreme events. These separable influences on risk preferences suggest that to understand real-world risk for rare events we must also consider the extremity of the outcomes.

Original languageEnglish
JournalPsychonomic Bulletin & Review
Early online date16 Nov 2023
DOIs
Publication statusPublished - 16 Nov 2023

Funding

This research was funded by the Alberta Gambling Research Institute (AGRI) and a Natural Sciences and Engineering Research Council (NSERC) Discovery Grant to Marcia L. Spetch. Alice Mason was supported by a Leverhulme Early Career Fellowship (ECF-2018-408) and an ESRC New Investigator Grant (ES/T016639/1). Door images were extracted from “Irish Doors” on fineartamerica.com with permission from Joe Bonita.

FundersFunder number
Natural Sciences and Engineering Research Council of Canada
University of Calgary
Economic and Social Research CouncilES/T016639/1
Leverhulme TrustECF-2018-408

Keywords

  • Decisions-from-experience
  • Extreme outcomes
  • Rare outcomes
  • Risky choice
  • Sampling models

ASJC Scopus subject areas

  • Experimental and Cognitive Psychology
  • Developmental and Educational Psychology

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