Ralph Hertwig

Decisions from Experience and the Effect of Rare Events in Risky Choice

When people have access to information sources such as newspaper weather forecasts, drug-package inserts, and mutual-fund brochures, all of which provide convenient descriptions of risky prospects, they can make decisions from description. When people must decide whether to back up their computers hard drive, cross a busy street, or go out on a date, however, they typically do not have any summary description of the possible outcomes or their likelihoods. For such decisions, people can call only on their own encounters with such prospects, making decisions from experience. Decisions from experience and decisions from description can lead to dramatically different choice behavior. In the case of decisions from description, people make choices as if they overweight the probability of rare events, as described by prospect theory. We found that in the case of decisions from experience, in contrast, people make choices as if they underweight the probability of rare events, and we explored the impact of two possible causes of this underweighting—reliance on relatively small samples of information and overweighting of recently sampled information. We conclude with a call for two different theories of risky choice.

The priority heuristic : making choices without trade-offs

Bernoullis framework of expected utility serves as a model for various psychological processes, including motivation, moral sense, attitudes, and decision making. To account for evidence at variance with expected utility, the authors generalize the framework of fast and frugal heuristics from inferences to preferences. The priority heuristic predicts (a) the Allais paradox, (b) risk aversion for gains if probabilities are high, (c) risk seeking for gains if probabilities are low (e.g., lottery tickets), (d) risk aversion for losses if probabilities are low (e.g., buying insurance), (e) risk seeking for losses if probabilities are high, (f) the certainty effect, (g) the possibility effect, and (h) intransitivities. The authors test how accurately the heuristic predicts peoples choices, compared with previously proposed heuristics and 3 modifications of expected utility theory: security-potential/aspiration theory, transfer-of-attention-exchange model, and cumulative prospect theory.

The description-experience gap in risky choice.

According to a common conception in behavioral decision research, two cognitive processes-overestimation and overweighting-operate to increase the impact of rare events on peoples choices. Supportive findings stem primarily from investigations in which people learn about options via descriptions thereof. Recently, a number of researchers have begun to investigate risky choice in settings in which people learn about options by experiential sampling over time. This article reviews work across three experiential paradigms. Converging findings show that when people make decisions based on experience, rare events tend to have less impact than they deserve according to their objective probabilities. Striking similarities in human and animal experience-based choices, ways of modeling these choices, and their implications for risk and precautionary behavior are discussed.

The conjunction fallacy revisited : how intelligent inferences look like reasoning errors

Findings in recent research on the ‘conjunction fallacy’ have been taken as evidence that our minds are not designed to work by the rules of probability. This conclusion springs from the idea that norms should be content-blind—in the present case, the assumption that sound reasoning requires following the conjunction rule of probability theory. But content-blind norms overlook some of the intelligent ways in which humans deal with uncertainty, for instance, when drawing semantic and pragmatic inferences. In a series of studies, we first show that people infer nonmathematical meanings of the polysemous term ‘probability’ in the classic Linda conjunction problem. We then demonstrate that one can design contexts in which people infer mathematical meanings of the term and are therefore more likely to conform to the conjunction rule. Finally, we report evidence that the term ‘frequency’ narrows the spectrum of possible interpretations of ‘probability’ down to its mathematical meanings, and that this fact—rather than the presence or absence of ‘extensional cues’—accounts for the low proportion of violations of the conjunction rule when people are asked for frequency judgments. We conclude that a failure to recognize the human capacity for semantic and pragmatic inference can lead rational responses to be misclassified as fallacies. Copyright

Grandparental investment: Past, present, and future

What motivates grandparents to their altruism? We review answers from evolutionary theory, sociology, and economics. Sometimes in direct conflict with each other, these accounts of grandparental investment exist side-by-side, with little or no theoretical integration. They all account for some of the data, and none account for all of it. We call for a more comprehensive theoretical framework of grandparental investment that addresses its proximate and ultimate causes, and its variability due to lineage, values, norms, institutions (e.g., inheritance laws), and social welfare regimes. This framework needs to take into account that the demographic shift to low fecundity and mortality in economically developed countries has profoundly altered basic parameters of grandparental investment. We then turn to the possible impact of grandparental acts of altruism, and examine whether benefits of grandparental care in industrialized societies may manifest in terms of less tangible dimensions, such as the grandchildrens cognitive and verbal ability, mental health, and well-being. Although grandparents in industrialized societies continue to invest substantial amounts of time and money in their grandchildren, we find a paucity of studies investigating the influence that this investment has on grandchildren in low-risk family contexts. Under circumstances of duress - for example, teenage pregnancy or maternal depression - there is converging evidence that grandparents can provide support that helps to safeguard their children and grandchildren against adverse risks. We conclude by discussing the role that grandparents could play in what has been referred to as Europes demographic suicide.

The role of representative design in an ecological approach to cognition.

Egon Brunswik argued that psychological processes are adapted to environmental properties. He proposed the method of representative design to capture these processes and advocated that psychology be a science of organism-environment relations. Representative design involves randomly sampling stimuli from the environment or creating stimuli in which environmental properties are preserved. This departs from systematic design. The authors review the development of representative design, examine its use in judgment and decision-making research, and demonstrate the effect of design on research findings. They suggest that some of the practical difficulties associated with representative design may be overcome with modern technologies. The importance of representative design in psychology and the implications of this method for ecological approaches to cognition are discussed.

Parental investment: How an equity motive can produce inequality

The equity heuristic is a decision rule specifying that parents should attempt to subdivide resources more or less equally among their children. This investment rule coincides with the prescription from optimality models in economics and biology in cases in which expected future return for each offspring is equal. In this article, the authors present a counterintuitive implication of the equity heuristic: Whereas an equity motive produces a fair distribution at any given point in time, it yields a cumulative distribution of investments that is unequal. The authors test this analytical observation against evidence reported in studies exploring parental investment and show how the equity heuristic can provide an explanation of why the literature reports a diversity of birth order effects with respect to parental resource allocation.

Do Frequency Representations Eliminate Conjunction Effects? An Exercise in Adversarial Collaboration:

The present article offers an approach to scientific debate called adversarial collaboration. The approach requires both parties to agree on empirical tests for resolving a dispute and to conduct these tests with the help of an arbiter. In dispute were Hertwigs claims that frequency formats eliminate conjunction effects and that the conjunction effects previously reported by Kahneman and Tversky occurred because some participants interpreted the word “and” in “bank tellers and feminists” as a union operator. Hertwig proposed two new conjunction phrases, “and are” and “who are,” that would eliminate the ambiguity. Kahneman disagreed with Hertwigs predictions for “and are,” but agreed with his predictions for “who are.” Mellers served as arbiter. Frequency formats by themselves did not eliminate conjunction effects with any of the phrases, but when filler items were removed, conjunction effects disappeared with Hertwigs phrases. Kahneman and Hertwig offer different interpretations of the findings. We discuss the benefits of adversarial collaboration over replies and rejoinders, and present a suggested protocol for adversarial collaboration.

Age differences in risky choice: a meta-analysis

Does risk taking change as a function of age? We conducted a systematic literature search and found 29 comparisons between younger and older adults on behavioral tasks thought to measure risk taking (N= 4,093). The reports relied on various tasks differing in several respects, such as the amount of learning required or the choice framing (gains vs. losses). The results suggest that age‐related differences vary considerably as a function of task characteristics, in particular the learning requirements of the task. In decisions from experience, age‐related differences in risk taking were a function of decreased learning performance: older adults were more risk seeking compared to younger adults when learning led to risk‐avoidant behavior, but were more risk averse when learning led to risk‐seeking behavior. In decisions from description, younger adults and older adults showed similar risk‐taking behavior for the majority of the tasks, and there were no clear age‐related differences as a function of gain/loss framing. We discuss limitations and strengths of past research and provide suggestions for future work on age‐related differences in risk taking.

On the psychology of the recognition heuristic : retrieval primacy as a key determinant of its use

The recognition heuristic is a prime example of a boundedly rational mind tool that rests on an evolved capacity, recognition, and exploits environmental structures. When originally proposed, it was conjectured that no other probabilistic cue reverses the recognition-based inference (D. G. Goldstein & G. Gigerenzer, 2002). More recent studies challenged this view and gave rise to the argument that recognition enters inferences just like any other probabilistic cue. By linking research on the heuristic with research on recognition memory, the authors argue that the retrieval of recognition information is not tantamount to the retrieval of other probabilistic cues. Specifically, the retrieval of subjective recognition precedes that of an objective probabilistic cue and occurs at little to no cognitive cost. This retrieval primacy gives rise to 2 predictions, both of which have been empirically supported: Inferences in line with the recognition heuristic (a) are made faster than inferences inconsistent with it and (b) are more prevalent under time pressure. Suspension of the heuristic, in contrast, requires additional time, and direct knowledge of the criterion variable, if available, can trigger such suspension.