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Are probabilities overweighted or underweighted when rare outcomes are experienced (rarely)?

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Ungemach, Christoph, Chater, Nick and Stewart, Neil, 1974-. (2009) Are probabilities overweighted or underweighted when rare outcomes are experienced (rarely)? Psychological Science, Vol.20 (No.4). pp. 473-479. ISSN 0956-7976

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Official URL: http://dx.doi.org/10.1111/j.1467-9280.2009.02319.x

Abstract

When making decisions involving risky outcomes on the basis of verbal descriptions of the outcomes and their associated probabilities, people behave as if they overweight small probabilities. In contrast, when the same outcomes are instead experienced in a series of samples, people behave as if they underweight small probabilities. We present two experiments showing that the existing explanations of the underweighting observed in decisions from experience are not sufficient to account for the effect. Underweighting was observed when participants experienced representative samples of events, so it cannot be attributed to undersampling of the small probabilities. In addition, earlier samples predicted decisions just as well as later samples did, so underweighting cannot be attributed to recency weighting. Finally, frequency judgments were accurate, so underweighting cannot be attributed to judgment error. Furthermore, we show that the underweighting of small probabilities is also reflected in the best-fitting parameter values obtained when prospect theory, the dominant model of risky choice, is applied to the data.

Item Type:	Journal Article
Subjects:	B Philosophy. Psychology. Religion > BF Psychology
Divisions:	Faculty of Social Sciences > Warwick Business School > Behavioural Science Faculty of Science > Psychology Faculty of Social Sciences > Warwick Business School
Library of Congress Subject Headings (LCSH):	Decision making, Choice (Psychology), Probabilities
Journal or Publication Title:	Psychological Science
Publisher:	Wiley-Blackwell Publishing Ltd.
ISSN:	0956-7976
Date:	April 2009
Volume:	Vol.20
Number:	No.4
Number of Pages:	7
Page Range:	pp. 473-479
Identification Number:	10.1111/j.1467-9280.2009.02319.x
Status:	Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Restricted or Subscription Access
Funder:	Economic and Social Research Council (Great Britain) (ESRC), Leverhulme Trust (LT)
Grant number:	RES-062-23-0952 (ESRC), PTA-030-2004-00781 (ESRC)
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URI:	http://wrap.warwick.ac.uk/id/eprint/1097