Valuation and estimation from experience. (1st March 2021)

• Record Type: Journal Article
• Authors: Olschewski, Sebastian; Newell, Ben R.; Oberholzer, Yvonne; Scheibehenne, Benjamin
• Is Part Of: Journal of behavioral decision making. Volume 34:Number 5(2021)
• Page Start: 729
• Page End: 741
• Publication Date: 2021-03-01
• Subjects: continuous outcome distributions -- decision from experience -- mean estimation -- mental number line -- numeric cognition -- risk preference -- valuation; Decision making -- Periodicals; Managerial economics -- Periodicals; Behavior -- Periodicals; Decision Making -- Periodicals; Prise de décision -- Périodiques; Économie d'entreprise -- Périodiques; 153.83
• DOI: 10.1002/bdm.2241
• Languages: English
• ISSNs: 0894-3257

Abstract

Abstract: The processing of sequentially presented numerical information is a prerequisite for decisions from experience, where people learn about potential outcomes and their associated probabilities and then make choices between gambles. Little is known, however, about how people's preference for choosing a gamble is affected by how they perceive and process numerical information. To address this, we conducted a series of experiments wherein participants repeatedly sampled numbers from continuous outcome distributions. They were incentivized either to estimate the means of the numbers or to state their minimum selling prices to forgo a consequential draw from the distributions (i.e., the certainty equivalents or valuations). We found that participants valued distributions below their means, valued high‐variance sequences lower than low‐variance sequences, and valued left‐skewed sequences lower than right‐skewed sequences. Though less pronounced, similar patterns occurred in the mean estimation task where preferences should not play a role. These results are not consistent with prior findings in decision from experience such as the overweighting of high numbers and the underweighting of rare events. Rather, the qualitative effects, as well as the similarity of effects in valuation and estimation, are consistent with the assumption that people process numbers on a compressed mental number line in valuations from experience.