Cognitive Imprecision and Stake-Dependent Risk Attitudes

Khaw, Mel Win; Li, Ziang; Woodford, Michael

doi:10.3386/w30417

Cited by 2 publications

References 26 publications

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Bayesian estimation yields anti-Weber variability

Prat-Carrabin,

Gershman

2024

Preprint

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A classic tenet of psychophysics due to Weber is that human perceptual judgments are more variable for larger magnitudes. The more recent Bayesian paradigm proposes that human perception results from an optimal statistical inference conducted on the basis of noisy internal signals. Both are supported by a wealth of empirical evidence. Do the two conflict, and if so, which best reproduces human behavior? In two preregistered experiments, we manipulate the prior distribution and the reward function in a numerosity-estimation task. When the large numerosities are more frequent, and when they are more rewarding, the Bayesian observer exhibits an ‘anti-Weber’ behavior, in which larger magnitudes results in less variable responses. Human subjects exhibit a similar pattern, thus breaking a long-standing law of psychophysics by showing the opposite behavior. This allows subjects to minimize the errors they make about the more frequent or the more rewarding magnitudes. Nevertheless, model fitting suggests that subjects’ responses are best captured by a model that features a logarithmic encoding, a proposal of Fechner often regarded as accounting for Weber’s law. We thus obtain an anti-Weber behavior together with a Fechner encoding. Our results suggest that Weber’s law may be primarily due to the skewness of natural priors.

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Bayesian estimation yields anti-Weber variability

Prat-Carrabin,

Gershman

2024

Preprint

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Decisions under Risk Are Decisions under Complexity

Oprea

2024

American Economic Review

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We provide evidence that classic lottery anomalies like probability weighting and loss aversion are not special phenomena of risk. They also arise (and often with equal strength) when subjects evaluate deterministic, positive monetary payments that have been disaggregated to resemble lotteries. Thus, we find, e.g., apparent probability weighting in settings without probabilities and loss aversion in settings without scope for loss. Across subjects, anomalies in these deterministic tasks strongly predict the same anomalies in lotteries. These findings suggest that much of the behavior motivating our most important behavioral theories of risk derive from complexity-driven mistakes rather than true risk preferences. (JEL C91, D44, D81, D91)

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Cognitive Imprecision and Stake-Dependent Risk Attitudes

Cited by 2 publications

References 26 publications

Bayesian estimation yields anti-Weber variability

Bayesian estimation yields anti-Weber variability

Decisions under Risk Are Decisions under Complexity

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