The influence of number line estimation precision and numeracy on risky financial decision making

Abstract

This study examined whether different aspects of mathematical proficiency influence one's ability to make adaptive financial decisions. "Numeracy" refers to the ability to process numerical and probabilistic information and is commonly reported as an important factor which contributes to financial decision-making ability. The precision of mental number representation (MNR), measured with the number line estimation (NLE) task has been reported to be another critical factor. This study aimed to examine the contribution of these mathematical proficiencies while controlling for the influence of fluid intelligence, math anxiety and personality factors. In our decision-making task, participants chose between two options offering probabilistic monetary gain or loss. Sensitivity to expected value was measured as an index for the ability to discriminate between optimal versus suboptimal options. Partial correlation and hierarchical regression analyses revealed that NLE precision better explained EV sensitivity compared to numeracy, after controlling for all covariates. These results suggest that individuals with more precise MNR are capable of making more rational financial decisions. We also propose that the measurement of "numeracy," which is commonly used interchangeably with general mathematical proficiency, should include more diverse aspects of mathematical cognition including basic understanding of number magnitude.

How representations of number and numeracy predict decision paradoxes: A fuzzy‐trace theory approach

“…The perception of number resembles the psychophysics of light or sound in that it is nonlinear and negatively accelerating for larger magnitudes. Such subjective perceptions have been distinguished from numeracy per se in the sense of formal mathematics (Park & Cho, 2018;Peters, Slovic, Västfjäll, & Mertz, 2008;Schley & Peters, 2014). 1 Understanding and use of numbers-numeracy-has been widely studied in research on decision-making (e.g., Cokely, Galesic, Schulz, Ghazal, & Garcia-Retamero, 2012;Lipkus, Samsa, & Rimer, 2001;Peters, Dieckmann, Dixon, Hibbard, & Mertz, 2007;Weller et al, 2013).…”

“…That is, the ordinal gist of our example translates to gaining less money in the sure option versus gaining more money (compared with the sure thing) and gaining less money (compared with the sure thing) in the gamble option. In our view, such magnitude comparisons draw on underlying mental representations captured in, for example, number line estimation tasks (Park & Cho, 2018). As with categorical gist representations, people apply compatibly represented values to these ordinal representations of options, namely, that more money is better than less money.…”

“…The perception of number resembles the psychophysics of light or sound in that it is nonlinear and negatively accelerating for larger magnitudes. Such subjective perceptions have been distinguished from numeracy per se in the sense of formal mathematics (Park & Cho, 2018; Peters, Slovic, Västfjäll, & Mertz, 2008; Schley & Peters, 2014).…”

Zdolności numeryczne jako kluczowe zdolności poznawcze w procesie podejmowania decyzji

“…elaborate heuristic search). Podsumowując, osoby z wyższym poziomem zdolności numerycznych mogą wykonywać bardziej skomplikowane operacje matematyczne skutkujące dokonaniem wyboru maksymalizującego wartość oczekiwaną -są bardziej wrażliwe na zmiany wartości oczekiwanej (Jasper, Bhattacharya, Levin, Jones, & Bossard, 2013;Park & Cho, 2018). Z drugiej zaś strony mogą opierać się na trafnych heurystykach.…”

“…Większa precyzja mentalnej osi liczbowej może być utożsamiana z wyższym poziomem szacunkowych zdolności numerycznych. Rezultaty badań wskazują, że precyzja mentalnej osi liczbowej (mierzona za pomocą dokładności w ulokowaniu wartości numerycznych na suwaku o określonej długości) jest związana z podejmowaniem decyzji bliższych modelowi normatywnemu w warunkach ryzyka (Park & Cho, 2018;Peters & Bjälkebring, 2015;Sobkow, Fulawka, Tomczak, Zjawiony, & Traczyk, 2019), oraz z bardziej liniową funkcją wag decyzyjnych (Petrova et al, 2019) i bardziej liniową funkcją użyteczności (Schley & Peters, 2014). Warto zaznaczyć, że nie oznacza to, iż osoby o wyższych szacunkowych zdolnościach numerycznych spostrzegają wartości liniowo.…”