Decision-Making under Risk of Loss in Children

Abstract

In human adults, judgment errors are known to often lead to irrational decision-making in risky contexts. While these errors can affect the accuracy of profit evaluation, they may have once enhanced survival in dangerous contexts following a “better be safe than sorry” rule of thumb. Such a rule can be critical for children, and it could develop early on. Here, we investigated the rationality of choices and the possible occurrence of judgment errors in children aged 3 to 9 years when exposed to a risky trade. Children were allocated with a piece of cookie that they could either keep or risk in exchange of the content of one cup among 6, visible in front of them. In the cups, cookies could be of larger, equal or smaller sizes than the initial allocation. Chances of losing or winning were manipulated by presenting different combinations of cookie sizes in the cups (for example 3 large, 2 equal and 1 small cookie). We investigated the rationality of children's response using the theoretical models of Expected Utility Theory (EUT) and Cumulative Prospect Theory. Children aged 3 to 4 years old were unable to discriminate the profitability of exchanging in the different combinations. From 5 years, children were better at maximizing their benefit in each combination, their decisions were negatively induced by the probability of losing, and they exhibited a framing effect, a judgment error found in adults. Confronting data to the EUT indicated that children aged over 5 were risk-seekers but also revealed inconsistencies in their choices. According to a complementary model, the Cumulative Prospect Theory (CPT), they exhibited loss aversion, a pattern also found in adults. These findings confirm that adult-like judgment errors occur in children, which suggests that they possess a survival value.

Managing Frequent Relocation in Families? Considering Prospect Theory, Emotional Framing, and Priming

“…They showed that 82% of respondents chose option B, the option with certainty for $2,400 over option A, which provided a 99% probability to gain either $2,400 or $2,500. This is a perfect example of how risk will affect judgment errors and rationality, leading individuals not to maximize profits and potential gains (Steelandt, Broihanne, Romain, Thierry, & Dufour, ). Additionally, Tversky and Kahneman () extended their findings to demonstrate how this certainty effect is sensitive to how the question is framed.…”

Gollin's (1965) levels-by-levels approach: the importance of manipulating the task dimension when assessing age-related changes and individual differences in decision making

“…Several groups have developed simplified decision making tasks with the aim of minimizing task difficulty for younger participants (Paulsen et al, 2011 , 2012 ; Weller et al, 2011 ). For example, in the first study to assess economic decision making in pre-school children, Steelandt et al ( 2013 ) assessed the rationality of choices and judgment errors made by 3- to 9-year-old children. Children were given an initial offering of a medium-sized piece of cookie and then choose either to keep that offer or risk it, by exchanging it for one of six cups that had more, less, or the same amount of cookie, chosen at random.…”

“…Steelandt et al ( 2013 ) found that 3- and 4-year-olds performed poorly while 5- and 6-year-olds were able to correctly distinguish profitable situations from non-profitable situations. The performance of the 3- to 4-year-olds may be due to economic decision-making not being present at this age, or the complexity of the paradigm.…”

Decision‐making under risk of gain in young children and mangabey monkeys

“…In choosing between a certain option and a risky option of equal EV, children as young as age 5 are likely to select risky options more often than adults (Harbaugh, Krause, & Vesterlund, ). In a trading game providing a typical risky economic situation, Steelandt, Broihanne, Romain, Thierry, and Dufour () showed that children aged 5–9 years were risk‐seekers. It could be hypothesized that children simply do not comprehend probabilities.…”

“…In a trading game providing a typical risky economic situation, Steelandt, Broihanne, Romain, Thierry, and Dufour (2013) showed that children aged 5-9 years were risk-seekers. It could be hypothesized that children simply do not comprehend probabilities.…”