Research Summary
Research Summary
Experience and description-based decision making.
Description
Prof. Barron and his co-authors study the effect of the economic environment on decision making. One example involves the effect of rare (low probability) events. People behave as if they overweight these events in some settings (e.g., when buying insurance and lotteries), but underweight them in other settings (e.g., while driving). The research conducted by Prof. Barron and his associates shows that this pattern can be understood as the outcome of the joint effect of a mere presentation effect that drives planning decisions from descriptions, and the tendency to rely on recent personal experience in small decisions.
Barron and Erev (2003) explore situations in which the information available to decision makers is limited to feedback concerning the outcomes of their previous decisions. The results reveal that experience in these situations can lead to deviations from maximization in the opposite direction of the deviations observed when the decisions are made based on a description of the choice problem (as in Kahneman & Tversky, 1979). Experience was found to lead to a reversed common ratio/certainty effect, more risk seeking in the gain than in the loss domain, and to an underweighting of small probabilities. Only one of the examined properties of description-based decisions, loss aversion, seems to emerge robustly in these “feedback-based” decisions. These results are summarized with a simple model that illustrates that all the unique properties of feedback-based decisions can be a product of a tendency to rely on recent outcomes. Currently, Barron and Stack (2005) study the robustness of this tendency to the recent outcomes of others. In particular, using data from the multi-state Powerball lottery, Barron and Stack examine whether people are more likely to play the lottery after someone has just won the jackpot despite the fact that the jackpot is then at its minimum.
Hertwig et al. (2004) examine if the difference between description and feedback documented by Barron and Erev is a result of the source of the information or the number of decisions made in each case. They study decisions from sampling. The subjects were allowed to sample they possible payoff distributions and than make a single choice. The results replicate the trend found in Barron and Erev. Thus, it seems that this trend is a function of the fact that the source of information was the decision makers personal experience.
The different role played by small probabilities in experience and description based decisions leads to interesting applications outside the lab. Yechiam, Barron and Erev (2005) suggest that terrorist attacks have a larger effect on potential tourists, who overweight the chance of an attack, then on local residents who learn about the probability of an attack through experience. Barron, Leider and Stack (2008) show that a descriptive warning is more effective when it coincides with the beginning or risk taking. Included are applications to "sex, drugs, rock-n-roll".
Barron and Erev (2003) explore situations in which the information available to decision makers is limited to feedback concerning the outcomes of their previous decisions. The results reveal that experience in these situations can lead to deviations from maximization in the opposite direction of the deviations observed when the decisions are made based on a description of the choice problem (as in Kahneman & Tversky, 1979). Experience was found to lead to a reversed common ratio/certainty effect, more risk seeking in the gain than in the loss domain, and to an underweighting of small probabilities. Only one of the examined properties of description-based decisions, loss aversion, seems to emerge robustly in these “feedback-based” decisions. These results are summarized with a simple model that illustrates that all the unique properties of feedback-based decisions can be a product of a tendency to rely on recent outcomes. Currently, Barron and Stack (2005) study the robustness of this tendency to the recent outcomes of others. In particular, using data from the multi-state Powerball lottery, Barron and Stack examine whether people are more likely to play the lottery after someone has just won the jackpot despite the fact that the jackpot is then at its minimum.
Hertwig et al. (2004) examine if the difference between description and feedback documented by Barron and Erev is a result of the source of the information or the number of decisions made in each case. They study decisions from sampling. The subjects were allowed to sample they possible payoff distributions and than make a single choice. The results replicate the trend found in Barron and Erev. Thus, it seems that this trend is a function of the fact that the source of information was the decision makers personal experience.
The different role played by small probabilities in experience and description based decisions leads to interesting applications outside the lab. Yechiam, Barron and Erev (2005) suggest that terrorist attacks have a larger effect on potential tourists, who overweight the chance of an attack, then on local residents who learn about the probability of an attack through experience. Barron, Leider and Stack (2008) show that a descriptive warning is more effective when it coincides with the beginning or risk taking. Included are applications to "sex, drugs, rock-n-roll".
Current directions of inquiry include:
1) Description vs. Experience in the Gamblers Fallacy. (With Steve Leider)
2) The FDA warning against giving cough syrup to children <2yrs. old. (With Talya Miron-Shatz)
3) The experience of false poitives and their effect on behavior: Application to mammography screening.
4) Underweighting in the absence of sample error. (With Giovanni Ursino)
5) "Wait till it happens to you". (With Eyal Ert)