Framing From Experience: Cognitive Processes and Predictions of Risky Choice

Abstract

A framing bias shows risk aversion in problems framed as "gains" and risk seeking in problems framed as "losses," even when these are objectively equivalent and probabilities and outcomes values are explicitly provided. We test this framing bias in situations where decision makers rely on their own experience, sampling the problem's options (safe and risky) and seeing the outcomes before making a choice. In Experiment 1, we replicate the framing bias in description-based decisions and find risk indifference in gains and losses in experience-based decisions. Predictions of an Instance-Based Learning model suggest that objective probabilities as well as the number of samples taken are factors that contribute to the lack of framing effect. We test these two factors in Experiment 2 and find no framing effect when a few samples are taken but when large samples are taken, the framing effect appears regardless of the objective probability values. Implications of behavioral results and cognitive modeling are discussed.

Allais from Experience: Choice Consistency, Rare Events, and Common Consequences in Repeated Decisions

“…But current empirical work of experiential choices contrasts descriptive‐based choice by suggesting that people behave as if they underweight rare outcomes (e.g., Hertwig et al, ). We provide more accurate observations of experienced‐based choice, which expand upon other studies using cognitive models (Gonzalez & Dutt, , ; Gonzalez & Mehlhorn, ; Harman, Mehlhorn, & Gonzalez, ). People do not seem to generally underweight rare outcomes in experiential‐based choice.…”

“…But overweighting diminishes with experience to give rise to the underweighting of rare events . The interaction between frequency and recency of rare outcomes is an important aspect of DFE emerging from the current work that calls for further investigation of the dynamics of choice (Gonzalez & Mehlhorn, ).…”

Pre‐Play Learning and the Preference Reversal Phenomenon

“…The role of pre‐play learning can be understood in the broader context of “choices from description” versus “choices from experience.” Harman and Gonzalez () and Gonzalez and Mehlhorn () found that experience with the distribution of payoffs decreased two anomalies in choices under risk, the Allais paradox and gain‐loss framing, respectively . Our results indicate that experience with the distribution of payoffs reduces the prevalence of pricing‐choice preference reversals.…”

Judgment and Decision Making

“…Sometimes, the results of mental model studies are domain specific, such as the finding that people tend to ignore herd immunity when thinking about vaccines (Downs et al 2008) and overestimate how well they can tell whether a potential partner has a sexually transmitted infection (Downs et al 2004). Sometimes, the results are general, such as the finding that people have difficulty predicting nonlinear processes (e.g., climate change) or how small risks mount up over time (Gonzalez & Mehlhorn 2016, Tong & Feiler 2017. Studies of mental models typically begin with open-ended interviews structured around the analysis and aimed at capturing intuitive formulations and modes of expression.…”

“…The price to pay for such verisimilitude is having to derive solutions experientially rather than analytically (Kahneman & Klein 2009). More recent dynamic decisionmaking research has linked tasks to theories of cognitive processes (Gonzalez & Mehlhorn 2016, Mohan et al 2017).…”