Rob Ranyard

Decision making : cognitive models and explanations

Part 1 Fundamentals Introduction to Part I 1. Cognitive Process Models and Explanations of Decision Making Ray Crozier and Rob Ranyard 2. Psychometric and Methodological Aspects of Process Tracing Research Johanna M. Harte and Pieter Koele Part II Values and Involvement Introduction to Part II 3. Personal Involvement in Human Decision Making: Conceptualisations and Effects on Decision Processes Bas Verplanken and Ola Svenson 4. Aspects of Compatability and the Construction of Preference Marcus Selart 5. Perspectives and Emotions in Personal Decision Making Anna Blom Kendal and Henry Montgomery 6. Is Hate Wiser than Love? Cognitive and Emotional Utilities in Decision Making Maria Lewicka Part III The Risk Dimension Introduction to Part III 7. Anticipating the Future: Appraising Risk and Uncertainty Karl Halvor Teigen and Wibecke Brun 8. Theoretical Conceptions of Framing Effects in Risky Decisions Anton Kuhberger 9. Beyond Gambles and Lotteries: Naturalistic Risky Decisions Oswald Huber Part IV The Time Decision Introduction to Part IV 10. Influences on the Past of Choices of the Future Tommy Garling, Niklas Karlsson, Joakim Romanus and Marcus Selart 11. The Effects of Time Pressure on Human Judgement and Decision Making A. John Maule and Anne C. Edland 12. Decision Making in Dynamic Task Environments Jose H. Kerstholt and Jeroen G.W. Raaijmakers 13. Turning Prior Disadvantages into Advantages: Differentiation and Consolidation in Real-life Decision Making Ola Svenson and Teci Hill 14. Post-decisional Confidence - Can It Be Trusted? Dan Zakay Index

Chinese and English Probabilistic Thinking and Risk Taking in Gambling

This study investigated cultural differences in probabilistic thinking and risk taking. A View of Uncertainty Questionnaire assessed the probabilistic thinking of Chinese and English gamblers and nongamblers and a hypothetical Horse Racing Task assessed risk-taking behavior (N = 120). The Chinese exhibited significantly less probabilistic thinking and riskier gambling decisions. A path analysis found that degree of probabilistic thinking was one (but not the only) source of the observed cultural differences in risk taking.

Euro Illusion: Psychological Insights into Price Evaluations with a Unitary Currency

Gamble, A. (2005). Perception of Value of Money in Unfamiliar Currencies Department of Psychology, Goteborg University, Sweden. The real value of money as well as the perceived value of money is subject to changes. Inflation and deflation are examples of changes in real value. It has been shown that these changes do not always correspond to changes in subjective value. The money illusion implies that the subjective value of money is biased by the nominal representation in times of inflation or deflation. This thesis examines the related euro illusion referring to an influence of the nominal representation on the subjective value of money when a small-unit currency (high nominal value) is compared to a large-unit currency (low nominal value) or the reverse. In addition the thesis investigates whether accuracy-effort tradeoffs affect the size of the euro illusion. In Study I participants were in four experiments requested to evaluate prices of consumer products in their domestic currencies (Swedish crowns or pound sterling) or in euros, or to make evaluations of prices of low-price and high-price essential and non-essential consumer products in fictitious currencies with different exchange rates. Either a positive or a negative attitude was induced. In three experiments Study II tested the effects of mood on choices between two fictitious currencies for making payment or obtaining a salary as well as on choices between low-price and high-price consumer products with prices expressed in fictitious currencies. Mood was induced in one experiment and in two experiments natural mood was assessed. Three experiments in Study III investigated the role of income on the euro illusion. A reverse euro illusion was hypothesized because when the income is known, the prices of consumer products would be compared to the income, and thus they would be evaluated as less expensive in a currency with a large nominal value than in a currency with a small nominal value (called the compression effect). In Study IV three experiments systematically varied either the actual or subjective value for the same nominal value of money. The results of the conducted studies demonstrated the expected bias toward the nominal representation of prices (the euro illusion) when prices were expressed in fictitious currencies. This was done for both evaluations of prices of consumer goods, of choices of currency, and of choices between consumer products. Furthermore, both changes and no changes in the nominal representation affected price evaluations. In support of the role of accuracy-effort tradeoffs, the euro illusion was reduced by a more important task (evaluation of prices of high-price essential products), a negative attitude, and an induced activated negative mood, as well as a simple exchange rate.The Euro illusion is a phenomenon related to the money illusion whereby people are biased toward the nominal representation of the Euro (the numbers printed on notes and coins) when evaluating prices in the new currency. In Study 1 the Euro illusion was demonstrated in telephone interviews of a Swedish population-based sample. However, no Euro illusion was found for British students in Study 2. An additional two studies employing student samples demonstrated the Euro illusion for fictitious unknown currencies in that prices of goods or services were evaluated as less expensive when the money unit was larger. An exception, however, was that prices were evaluated as more expensive when the money unit was very small (like the Italian Lira). Furthermore, the illusion was weaker or absent for low-price essential goods or services or for an induced negative attitude toward the currency change.

Evaluating and budgeting with instalment credit : an interview study

Abstract This paper examines the role of instalment credit in personal budgeting, and the way people evaluate it. Evaluation is considered mainly in terms of the important notion of the mental account. It is proposed that consumers utilise a dual representation of instalment credit based on total accounts and recurrent budget period accounts . A study is reported in which mature adults were presented with advertisements for in-store credit. These were the focus of interviews aimed at eliciting spontaneous evaluations and views of instalment credit. A content analysis illustrated some of the ways that consumers construe it in terms of total and recurrent budget period accounts. It is concluded that mental accounts are ‘natural’ representations which serve useful functions in personal budgeting; they help consumers to control the balance between income and expenditure over indefinite time periods.

Mental accounting and the process of multiattribute choice

Tversky and Kahneman (1981) discussed how multiattribute choices may be framed in terms of alternative psychological accounts established for specific problems. They identified three levels of account: minimal, topical and comprehensive. The role of these mental accounts is investigated in two studies of Tversky and Kahnemans Jacket and Calculator problem. In the first, systematic variation of jacket and calculator prices showed that the latter had a large effect on choice, and the former a small but significant effect. It is concluded that: (1) the effect of the calculator price supports Tversky and Kahnemans view that people frame simple choices in terms of specific, topical accounts; and (2) the jacket price effect supports the view that more comprehensive mental accounts also influence evaluation and choice. In the second study, think aloud evidence is presented which supports these conclusions and indicates that the level of account adopted may be contingent on characteristics of the choice problem.

The role of internal reference prices in consumers’ willingness to pay judgments: Thaler’s Beer Pricing Task revisited

Alternative reference prices, either displayed in the environment (external) or recalled from memory (internal) are known to influence consumer judgments and decisions. In one line of previous research, internal reference prices have been defined in terms of general price expectations. However, Thaler (Marketing Science 4 (1985) 199; Journal of Behavioral Decision Making 12 (1999) 183) defined them as fair prices expected from specific types of seller. Using a Beer Pricing Task, he found that seller context had a substantial effect on willingness to pay, and concluded that this was due to specific internal reference prices evoked by specific contexts. In a think aloud study using the same task (N = 48), we found only a marginal effect of seller context. In a second study using the Beer Pricing Task and seven analogous ones (N = 144), general internal reference prices were estimated by asking people what they normally paid for various commodities. Both general internal reference prices and seller context influenced willingness to pay, although the effect of the latter was again rather small. We conclude that general internal reference prices have a greater impact in these scenarios than specific ones, because of the lower cognitive load involved in their storage and retrieval.

Risk management in everyday insurance decisions: evidence from a process tracing study

This study examined the applicability of Hubers (1997) model of risk management to a real-world consumer insurance decision, namely whether to insure a recently purchased item against possible mechanical breakdown in the future. Huber argued that decision makers manage the risks of negative outcomes by applying one or more defusing operators. Respondents in this study asked for whatever information they felt necessary to decide whether to take out an extended warranty on two consumer products of differing values. We found support for most aspects of the model, particularly in relation to risk defusing operators, but also identified some respondents who could not easily be accommodated within it, i.e. those who perceived risk, but did not seem prepared to take any action. We also found evidence for recognition primed insurance decisions. The results are interpreted from a bounded rationality perspective.

Risk Management in Consumers' Credit Decision Making

Summary: A study is described of the risk management strategies employed by consumers who have made a purchase by credit. Realistic scenarios involving the purchase of consumer durables were used and adults with a variety of occupations and a range of experience of credit participated (N = 96). They were presented with minimal descriptions of alternative credit offers and an option to buy insurance to cover repayment difficulties due to job loss or illness. Participants could request any information required while deciding, and afterwards they summarized how they had reached their decision. Verbal protocols for the repayment insurance decision were generally consistent with a revised version of Hubers (1997) model of risk management. In this two-dimensional threshold model, if a risk exceeds both a loss probability and a loss value threshold, risk defusing operators are activated. Some strategies not consistent with the model were also observed, either involving more complex compensatory thinking, or sim...

Estimating the duration of a flexible loan: The effect of supplementary information

Abstract In most countries, loan duration information is not usually provided with flexible credit such as store cards and credit cards. Two studies investigated the accuracy with which people could estimate loan duration, varying the supplementary information that was provided. In the first study it was found that estimation improved slightly when information about average monthly interest charges was provided, whereas it was slightly worse when the Annual Percentage Rate of interest (APR) was given. In the second study it was found that information on total interest charges improved estimation substantially. The results are interpreted in terms of psychological accounts, and it is concluded that providing information about total interest charges may help people to evaluate and budget better with flexible credit.

Chinese and English Speakers’ Linguistic Expression of Probability and Probabilistic Thinking

Previous research found that when bilingual Chinese speakers responded to a View of Uncertainty Questionnaire (VUQ) in English, they exhibited greater nonprobabilistic thinking than did native English speakers. This study compares English and Chinese speakers’ responses to a VUQ in their native languages. Their responses to a Probability Scale Task (PST), in which respondents labeled a numerical scale in their own language, also were compared. On the VUQ, results from several measures suggested that the Chinese speakers showed more nonprobabilistic thinking than did the English speakers. Similarly, in the PST, they used a lesser variety of probability phrases and used them less precisely than did the English speakers. It is argued that these results advance understanding of the relation between probabilistic thinking and the use of probability language.