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 language | English |
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Journal | Psychonomic Bulletin & Review |
Early online date | 16 Nov 2023 |
DOIs | |
Publication status | Published - 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.
Funders | Funder number |
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Natural Sciences and Engineering Research Council of Canada | |
University of Calgary | |
Economic and Social Research Council | ES/T016639/1 |
Leverhulme Trust | ECF-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