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Frequent winners explain apparent skewness preferences in experience-based decisions
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Olschewski, Sebastian, Spektor, Mikhail S. and Le Mens, Gaël (2024) Frequent winners explain apparent skewness preferences in experience-based decisions. Proceedings of the National Academy of Sciences of the United States of America, 121 (12). e2317751121. doi:10.1073/pnas.2317751121 ISSN 0027-8424.
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Official URL: https://doi.org/10.1073/pnas.2317751121
Abstract
Do people’s attitudes toward the (a)symmetry of an outcome distribution affect their choices? Financial investors seek return distributions with frequent small returns but few large ones, consistent with leading models of choice in economics and finance that assume right-skewed preferences. In contrast, many experiments in which decision-makers learn about choice options through experience find the opposite choice tendency, in favor of left-skewed options. To reconcile these seemingly contradicting findings, the present work investigates the effect of skewness on choices in experience-based decisions. Across seven studies, we show that apparent preferences for left-skewed outcome distributions are a consequence of those distributions having a higher value in most direct outcome comparisons, a “frequent-winner effect.” By manipulating which option is the frequent winner, we show that choice tendencies for frequent winners can be obtained even with identical outcome distributions. Moreover, systematic choice tendencies in favor of right- or left-skewed options can be obtained by manipulating which option is experienced as the frequent winner. We also find evidence for an intrinsic preference for right-skewed outcome distributions. The frequent-winner phenomenon is robust to variations in outcome distributions and experimental paradigms. These findings are confirmed by computational analyses in which a reinforcement-learning model capturing frequent winning and intrinsic skewness preferences provides the best account of the data. Our work reconciles conflicting findings of aggregated behavior in financial markets and experiments and highlights the need for theories of decision-making sensitive to joint outcome distributions of the available options.
Item Type: | Journal Article | |||||||||||||||||||||
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Subjects: | H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management | |||||||||||||||||||||
Divisions: | Faculty of Science, Engineering and Medicine > Science > Mathematics Faculty of Social Sciences > Warwick Business School |
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Library of Congress Subject Headings (LCSH): | Decision making -- Mathematical models, Risk-taking (Psychology), Risk -- Mathematical models, Finance -- Mathematical models | |||||||||||||||||||||
Journal or Publication Title: | Proceedings of the National Academy of Sciences of the United States of America | |||||||||||||||||||||
Publisher: | National Academy of Sciences | |||||||||||||||||||||
ISSN: | 0027-8424 | |||||||||||||||||||||
Official Date: | 19 March 2024 | |||||||||||||||||||||
Dates: |
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Volume: | 121 | |||||||||||||||||||||
Number: | 12 | |||||||||||||||||||||
Article Number: | e2317751121 | |||||||||||||||||||||
DOI: | 10.1073/pnas.2317751121 | |||||||||||||||||||||
Status: | Peer Reviewed | |||||||||||||||||||||
Publication Status: | Published | |||||||||||||||||||||
Access rights to Published version: | Restricted or Subscription Access | |||||||||||||||||||||
Date of first compliant deposit: | 18 March 2024 | |||||||||||||||||||||
RIOXX Funder/Project Grant: |
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