The Library

Decision by sampling: the role of the decision environment in risky choice

Tools

Stewart, Neil. (2009) Decision by sampling: the role of the decision environment in risky choice. Quarterly Journal of Experimental Psychology, Vol.62 (No.6). pp. 1041-1062. ISSN 1747-0218

Preview

PDF
WRAP_Stewart_decision_sampling_risky.pdf - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader
Download (400Kb)

Official URL: http://dx.doi.org/10.1080/17470210902747112

Abstract

Decision by sampling (DbS) is a theory about how our environment shapes the decisions that we make. Here, I review the application of DbS to risky decision making. According to classical theories of risky decision making, people make stable transformations between outcomes and probabilities and their subjective counterparts using fixed psychoeconomic functions. DbS offers a quite different account. In DbS, the subjective value of an outcome or probability is derived from a series of binary, ordinal comparisons with a sample of other outcomes or probabilities from the decision environment. In this way, the distribution of attribute values in the environment determines the subjective valuations of outcomes and probabilities. I show how DbS interacts with the real-world distributions of gains, losses, and probabilities to produce the classical psychoeconomic functions. I extend DbS to account for preferences in benchmark data sets. Finally, in a challenge to the classical notion of stable subjective valuations, I review evidence that manipulating the distribution of attribute values in the environment changes our subjective valuations just as DbS predicts.

Item Type:

Journal Article

Subjects:

B Philosophy. Psychology. Religion > BF Psychology

Divisions:

Faculty of Science > Psychology

Library of Congress Subject Headings (LCSH):

Decision making -- Testing, Risk-taking (Psychology) -- Testing, Psychology, Experimental -- Research -- Statistical methods

Journal or Publication Title:

Quarterly Journal of Experimental Psychology

Publisher:

Taylor & Francis

ISSN:

1747-0218

Official Date:

June 2009

Dates:

Date	Event
June 2009	Published

Volume:

Vol.62

Number:

No.6

Number of Pages:

Page Range:

pp. 1041-1062

Identification Number:

10.1080/17470210902747112

Status:

Peer Reviewed

Access rights to Published version:

Open Access

Funder:

Economic and Social Research Council (Great Britain) (ESRC)

Grant number:

RES-062-23-0952 (ESRC)

References:

1. Allais, M. (1953) Le comportement de l'homme rationel devant le risque: Critique des postulats et axioms de l'ecole americaine [Rational man's behavior in face of risk: Critique of the American School's postulates and axioms]. Econometrica 21 , pp. 503-546.
2. Anderson, J. R. and Schooler, L. J. (1991) Reflections of the environment in memory. Psychological Science 2 , pp. 396-408.
3. Anderson, N. H. (1981) Foundations of information integration theory Academic Press , New York
4. Ariely, D., Koszegi, B., Mazar, N. and Shampan'er, K. Price-sensitive preferences. — Unpublished manuscript
5. Bak, P. (1997) How nature works: The science of self-organized criticality Oxford University Press , Oxford, UK
6. Bell, D. E. and Fishburn, P. C. (1999) Utility functions for wealth. Journal of Risk and Uncertainty 20 , pp. 5-44.
7. Benartzi, S. and Thaler, R. H. (2001) Naive diversification strategies in defined contribution saving plans. The American Economic Review 91 , pp. 79-98.
8. Bernoulli, D. (1954) Expositions of a new theory of the measurement of risk. Econometrica 22 , pp. 23-36. — (Original work published 1738)
9. Bettman, J. R., Luce, M. F. and Payne, J. W. (1998) Constructive consumer choice processes. Journal of Consumer Research 25 , pp. 187-217.
10. Birnbaum, M. H. (1992) Violations of the monotonicity and contextual effects in choice-based certainty equivalents. Psychological Science 3 , pp. 310-314.
11. Birnbaum, M. H. (2008) New paradoxes of risky decision making. Psychological Review 115 , pp. 453-501.
12. Birnbaum, M. H. and Chavez, A. (1997) Tests of theories of decision making: Violations of branch independence and distribution independence. Organizational Behavior and Human Decision Processes 71 , pp. 161-194.
13. Brown, G. D. A., Gardner, J., Oswald, A. J. and Qian, J. (2008) Does wage rank affect employees' well-being?. Industrial Relations 47 , pp. 355-389.
14. Budescu, D. V. and Wallsten, T. S. Busemeyer, J., Medin, D. L. and Hastie, R. (eds) (1995) Processing linguistic probabilities: General principles and empirical evidence. The psychology of learning and motivation: Vol. 32. Decision making from a cognitive perspective pp. 275-318. Academic Press , San Diego, CA
15. Busemeyer, J. R. and Townsend, J. T. (1993) Decision field theory: A dynamic-cognitive approach to decision making in an uncertain environment. Psychological Review 100 , pp. 432-459.
16. Camerer, C. F. Kagel, J. and Roth, A. E. (eds) (1995) Individual decision making. Handbook of experimental economics pp. 587-703. Princeton University Press , Princeton, NJ
17. Carlin, P. S. (1992) Violations of the reduction and independence axioms in Allais-type and common-ratio effect experiments. Journal of Economic Behavior & Organization 19 , pp. 213-235.
18. Chater, N. and Brown, G. D. A. (2008) From universal laws of cognition to specific cognitive models. Cognitive Science 32 , pp. 36-47.
19. Daniels, R. L. and Keller, L. R. (1992) Choice-based assessment of utility functions. Organizational Behavior and Human Decision Processes 52 , pp. 524-543.
20. Davies, G. B. and Satchell, S. E. (2007) The behavioural components of risk aversion. Journal of Mathematical Psychology 51 , pp. 1-13.
21. Dawes, R. M. (1979) The robust beauty of linear models of decision making. American Psychologist 34 , pp. 571-582.
22. Dhar, R. and Glazer, R. (1996) Similarity in context: Cognitive representation and violation of preference and perceptual invariance in consumer choice. Organizational Behavior and Human Decision Processes 67 , pp. 280-293.
23. Dougherty, M. P. R. and Hunter, J. (2003a) Hypothesis generation, probability judgment, and individual differences in working memory capacity. Acta Psychologica 113 , pp. 263-282.
24. Dougherty, M. P. R. and Hunter, J. (2003b) Probability judgment and subadditivity: The role of working memory capacity and constraining retrieval. Memory & Cognition 31 , pp. 968-982.
25. Edwards, W. (1962) Subjective probabilities inferred from decisions. Psychological Review 69 , pp. 109-135.
26. Engle, R. W., Tuholski, S. W., Laughlin, J. E. and Conway, A. R. A. (1999) Working memory, short term memory, and general fluid intelligence: A latent variable approach. Journal of Experimental Psychology: General 128 , pp. 309-331.
27. Ert, E. and Erev, I. (2007) Loss aversion in decisions under risk and the value of a symmetric simplification of prospect theory. — Unpublished manuscript
28. Feller, W. (1968) An introduction to probability theory and its applications 1 , Wiley , New York
29. Fishburn, P. C. and Kochenberger, G. A. (1979) Two-piece von Neumann-Morgenstern utility functions. Decision Sciences 10 , pp. 503-518.
30. Galanter, E. (1962) The direct measurement of utility and subjective probability. American Journal of Psychology 75 , pp. 208-220.
31. Galanter, E. (1990) Utility functions for nonmonetary events. American Journal of Psychology 103 , pp. 449-470.
32. Garner, W. R. (1954) Context effects and the validity of loudness scales. Journal of Experimental Psychology 48 , pp. 218-224.
33. Gigerenzer, G. and Hoffrage, U. (1995) How to improve Bayesian reasoning without instruction: Frequency formats. Psychological Review 102 , pp. 684-704.
34. Gonzalez, R. and Wu, G. (1999) On the shape of the probability weighting function. Cognitive Psychology 38 , pp. 129-166.
35. Helson, H. (1964) Adaptation-level theory Harper & Row , New York
36. Huber, J., Payne, J. W. and Puto, C. (1982) Adding asymmetrically dominated alternatives: Violations of regularity and the similarity hypothesis. Journal of Consumer Research 9 , pp. 90-98.
37. Kahneman, D. and Miller, D. T. (1986) Norm theory: Comparing reality to its alternatives. Psychological Review 93 , pp. 136-153.
38. Kahneman, D. and Tversky, A. (1979) Prospect theory: An analysis of decision under risk. Econometrica 47 , pp. 263-291.
39. Kahneman, D. and Tversky, A. Kahneman, D. and Tversky, A. (eds) (2000) Choices, values and frames Cambridge University Press , New York
40. Kornbrot, D. E., Donnelly, M. and Galanter, E. (1981) Estimates of utility function parameters from signal-detection experiments. Journal of Experimental Psychology: Human Perception and Performance 7 , pp. 441-458.
41. Laming, D. R. J. (1997) The measurement of sensation Oxford University Press , London
42. Levin, I. R., Johnson, R. D., Russo, C. P. and Delden, P. J. (1985) Framing effects in judgment tasks with varying amounts of information. Organizational Behavior and Human Decision Processes 36 , pp. 362-377.
43. Loomes, G. and Sugden, R. (1982) Regret theory: An alternative theory of rational choice under uncertainty. Economic Journal 92 , pp. 805-824.
44. Loacutepes, L. L. and Oden, G. C. (1983) Some thoughts on the psychological concept of risk. Journal of Experimental Psychology: Human Perception and Performance 9 , pp. 137-144.
45. Luce, R. D. (2000) Utility of gains and losses: Measurement—theoretical and experimental approaches Lawrence Erlbaum Associates , Mahwah, NJ
46. Mellers, B. A. and Chang, S. (1994) Representations of risk judgments. Organizational Behavior and Human Decision Processes 57 , pp. 167-184.
47. Mellers, B. A., Chang, S. J., Birnbaum, M. H. and Ordoacutentildeez, L. D. (1992a) Preferences, prices, and ratings in risky decision-making. Journal of Experimental Psychology: Human Perception and Performance 18 , pp. 347-361.
48. Mellers, B. A., Ordoacutentildeez, L. D. and Birnbaum, M. H. (1992b) A change-of-process theory for contextual effects and preference reversals in risky decision making. Organizational Behavior and Human Decision Processes 52 , pp. 331-369.
49. Parducci, A. (1965) Category judgment: A range-frequency model. Psychological Review 72 , pp. 407-418.
50. Parducci, A. (1995) Happiness, pleasure and judgment: The contextual theory and its applications Lawrence Erlbaum Associates , Mahwah, NJ
51. Payne, J. W., Bettman, J. R. and Johnson, E. J. (1992) Behavioral decision research: A constructive processing perspective. Annual Review of Psychology 43 , pp. 87-131.
52. Poulton, E. C. (1989) Bias in quantifying judgments. Lawrence Erlbaum Associates , Hillsdale, NJ
53. Poulton, E. C. (1994) Behavioural decision theory: A new approach Cambridge University Press , Cambridge, UK
54. Quiggin, J. (1993) Generalized expected utility theory: The rank-dependent model Kluwer Academic Publishers , Norwell, MA
55. Savage, L. J. (1954) The foundations of statistics Wiley , New York
56. Schoemaker, P. J. H. (1982) The expected utility model: Its variants, purposes, evidence, and limitations. Journal of Economic Literature 20 , pp. 529-563.
57. Sedlmeier, P. and Betsch, T. Sedlmeier, P. and Betsch, T. (eds) (2002) Etc. Frequency processing and cognition Oxford University Press , Oxford, UK
58. Shanteau, J. (1975) Averaging versus multiplying combination rules of inference judgment. Acta Psychologica 39 , pp. 83-89.
59. Simonson, I. (1989) Choice based on reasons: The case of attraction and compromise effects. Journal of Consumer Research 16 , pp. 158-174.
60. Slovic, P. (1995) The construction of preference. American Psychologist 50 , pp. 364-371.
61. Sprenger, A. and Dougherty, M. R. (2006) Differences between probability and frequency judgments: The role of individual differences in working memory capacity. Organizational Behavior and Human Decision Processes 99 , pp. 202-211.
62. Starmer, C. (2000) Developments in non-expected utility theory: The hunt for a descriptive theory of choice under risk. Journal of Economic Literature 38 , pp. 332-382.
63. Stewart, N. and Brown, G. D. A. (2004) Sequence effects in categorizing tones varying in frequency. Journal of Experimental Psychology: Learning, Memory, and Cognition 30 , pp. 416-430.
64. Stewart, N., Brown, G. D. A. and Chater, N. (2002) Sequence effects in categorization of simple perceptual stimuli. Journal of Experimental Psychology: Learning, Memory, and Cognition 28 , pp. 3-11.
65. Stewart, N., Brown, G. D. A. and Chater, N. (2005) Absolute identification by relative judgment. Psychological Review 112 , pp. 881-911.
66. Stewart, N., Chater, N. and Brown, G. D. A. (2006) Decision by sampling. Cognitive Psychology 53 , pp. 1-26.
67. Stewart, N., Chater, N., Stott, H. P. and Reimers, S. (2003) Prospect relativity: How choice options influence decision under risk. Journal of Experimental Psychology: General 132 , pp. 23-46.
68. Stewart, N. and Morin, C. (2007) Dissimilarity is used as evidence of category membership in multidimensional perceptual categorisation: A test of the similarity-dissimilarity generalised context model. Quarterly Journal of Experimental Psychology 60 , pp. 1337-1346.
69. Stewart, N. and Reimers, S. (2008a) How the distribution of attribute values influences decision under risk. — Unpublished manuscript
70. Stewart, N. and Reimers, S. (2008b) Revealed psychoeconomic functions are not stable. — Unpublished manuscript
71. Stewart, N. and Simpson, K. Chater, N. and Oaksford, M. (eds) (2008) A decision-by-sampling account of decision under risk. The probabilistic mind: Prospects for Bayesian cognitive science pp. 261-276. Oxford University Press , Oxford, UK
72. Stott, H. P. (2006) Cumulative prospect theory's functional menagerie. Journal of Risk and Uncertainty 32 , pp. 101-130.
73. Thomas, R. P., Dougherty, M. R. P., Sprenger, A. M. and Harbison, J. I. (2008) Diagnostic hypothesis generation and human judgment. Psychological Review 115 , pp. 155-185.
74. Tversky, A. (1969) Intransitivity of preferences. Psychological Review 76 , pp. 31-48.
75. Tversky, A. and Kahneman, D. (1992) Advances in prospect theory: Cumulative representation of uncertainty. Journal of Risk and Uncertainty 5 , pp. 297-323.
76. Tversky, A. and Koehler, D. J. (1994) Support theory: A nonextensional representation of subjective probability. Psychological Review 101 , pp. 547-567.
77. Vlaev, I., Chater, N. and Stewart, N. (2007a) Financial prospect relativity: Context effects in financial decision-making under risk. Journal of Behavioral Decision Making 20 , pp. 273-304.
78. Vlaev, I., Chater, N. and Stewart, N. (2007b) Relativistic financial decisions: Context effects on retirement saving and investment risk preferences. Judgment and Decision Making 2 , pp. 292-311.
79. von Neumann, M. and Morgenstern, O. (1947) Theory of games and economic behavior 2, Princeton University Press , Princeton, NJ
80. Wedell, D. H. (1991) Distinguishing among models of contextually induced preference reversals. Journal of Experimental Psychology: Learning, Memory, and Cognition 17 , pp. 767-778.
81. Windschitl, P. D. and Chambers, J. R. (2004) The dud-alternative effect in likelihood judgment. Journal of Experimental Psychology: Learning, Memory, and Cognition 30 , pp. 198-215.
82. Windschitl, P. D. and Wells, G. L. (1998) The alternative-outcomes effect. Journal of Personality & Social Psychology 75 , pp. 1441-1423.