Ludvig, Elliot Andrew, Madan, Christopher R. and Spetch, Marcia Louise (2014) Extreme outcomes sway risky decisions from experience. Journal of Behavioral Decision Making, Volume 27 (Number 2). pp. 146-156. doi:10.1002/bdm.1792

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Abstract

Whether buying stocks or playing the slots, people making real-world risky decisions often rely on their experiences with the risks and rewards. These decisions, however, do not occur in isolation but are embedded in a rich context of other decisions, outcomes, and experiences. In this paper, we systematically evaluate how the local context of other rewarding outcomes alters risk preferences. Through a series of four experiments on decisions from experience, we provide evidence for an extreme-outcome rule, whereby people overweight the most extreme outcomes (highest and lowest) in a given context. As a result, people should be more risk seeking for gains than losses, even with equally likely outcomes. Across the experiments, the decision context was varied so that the same outcomes served as the high extreme, low extreme, or neither. As predicted, people were more risk seeking for relative gains, but only when the risky option potentially led to the high-extreme outcome. Similarly, people were more risk averse for relative losses, but only when the risky option potentially led to the
low-extreme outcome. We conclude that in risky decisions from experience, the biggest wins and the biggest losses seem to matter more than they should.

Item Type:	Journal Article
Subjects:	B Philosophy. Psychology. Religion > BF Psychology
Divisions:	Faculty of Science > Psychology
Library of Congress Subject Headings (LCSH):	Decision making, Risk-taking (Psychology), Reasoning (Psychology), Experience, Context effects (Psychology)
Journal or Publication Title:	Journal of Behavioral Decision Making
Publisher:	John Wiley & Sons Ltd.
ISSN:	0894-3257
Official Date:	April 2014
Dates:	Date Event April 2014 Published 11 July 2013 Available 10 May 2013 Accepted 25 January 2013 Submitted
Volume:	Volume 27
Number:	Number 2
Number of Pages:	10
Page Range:	pp. 146-156
DOI:	10.1002/bdm.1792
Status:	Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Restricted or Subscription Access
Funder:	Alberta Gambling Research Institute (AGRI), Natural Sciences and Engineering Research Council of Canada (NSERC), Canadian Institutes of Health Research (CIHR), National Institutes of Health (U.S.) (NIH)
Grant number:	P30 AG024361 (NIH)

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