Encoding Context Determines Risky Choice

Rare and extreme outcomes in risky choice

Many real-world decisions involving rare events also involve extreme outcomes. Despite this confluence, decisions-from-experience research has only examined the impact of rarity and extremity in isolation. With rare events, people typically choose as if they underestimate the probability of a rare outcome happening. Separately, people typically overestimate the probability of an extreme outcome happening. Here, for the first time, we examine the confluence of these two biases in decisions-from-experience. In a between-groups behavioural experiment, we examine people's risk preferences for rare extreme outcomes and for rare non-extreme outcomes. When outcomes are both rare and extreme, people's risk preferences shift away from traditional risk patterns for rare events: they show reduced underweighting for events that are both rare and extreme. We simulate these results using a small-sample model of decision-making that accounts for both the underweighting of rare events and the overweighting of extreme events. These separable influences on risk preferences suggest that to understand real-world risk for rare events we must also consider the extremity of the outcomes.

Am I Winning or Losing? Probing the Appraisal of Partial Wins via Response Vigor

Attempts to obtain rewards are not always successful. Despite investing much time, effort, or money, sometimes individuals may not obtain any reward. Other times they may obtain some reward, but the obtained reward may be smaller than their initial investment, such as partial wins in gambling. It remains unclear how such ambiguous outcomes are appraised. To address this question, we systematically varied the payoffs for different outcomes in a computerized scratch card task across three experiments. To test outcome appraisal, we used response vigor as a novel proxy. In the scratch card task, participants turned three cards one by one. Depending on the turned cards, they either received an amount that was higher than the wager (win), an amount lower than the wager (partial win), or nothing (loss). Overall, participants responded to partial wins more slowly than losses, but more quickly than wins. Partial wins were therefore appraised to be better than losses, but worse than wins. Importantly, further analyses showed that outcome appraisal was not based on the net win or loss amount. Instead, participants primarily used the configuration of turned cards as a cue for the relative rank of an outcome within a specific game. Outcome appraisals thus utilize simple heuristic rules, rely on salient information (such as outcome-related cues in gambling), and are specific to a local context. Together, these factors may contribute to the misperception of partial wins as real wins in gambling. Future work may examine how outcome appraisal may be modulated by the salience of certain information, and investigate the appraisal process in contexts beyond gambling.

The Future of Decisions From Experience: Connecting Real-World Decision Problems to Cognitive Processes

In many important real-world decision domains, such as finance, the environment, and health, behavior is strongly influenced by experience. Renewed interest in studying this influence led to important advancements in the understanding of these decisions from experience (DfE) in the last 20 years. Building on this literature, we suggest ways the standard experimental design should be extended to better approach important real-world DfE. These extensions include, for example, introducing more complex choice situations, delaying feedback, and including social interactions. When acting upon experiences in these richer and more complicated environments, extensive cognitive processes go into making a decision. Therefore, we argue for integrating cognitive processes more explicitly into experimental research in DfE. These cognitive processes include attention to and perception of numeric and nonnumeric experiences, the influence of episodic and semantic memory, and the mental models involved in learning processes. Understanding these basic cognitive processes can advance the modeling, understanding and prediction of DfE in the laboratory and in the real world. We highlight the potential of experimental research in DfE for theory integration across the behavioral, decision, and cognitive sciences. Furthermore, this research could lead to new methodology that better informs decision-making and policy interventions.

Testing models of context-dependent outcome encoding in reinforcement learning

Previous studies of reinforcement learning (RL) have established that choice outcomes are encoded in a context-dependent fashion. Several computational models have been proposed to explain context-dependent encoding, including reference point centering and range adaptation models. The former assumes that outcomes are centered around a running estimate of the average reward in each choice context, while the latter assumes that outcomes are compared to the minimum reward and then scaled by an estimate of the range of outcomes in each choice context. However, there are other computational mechanisms that can explain context dependence in RL. In the present study, a frequency encoding model is introduced that assumes outcomes are evaluated based on their proportional rank within a sample of recently experienced outcomes from the local context. A range-frequency model is also considered that combines the range adaptation and frequency encoding mechanisms. We conducted two fully incentivized behavioral experiments using choice tasks for which the candidate models make divergent predictions. The results were most consistent with models that incorporate frequency or rank-based encoding. The findings from these experiments deepen our understanding of the underlying computational processes mediating context-dependent outcome encoding in human RL.

Biased confabulation in risky choice

When people make risky decisions based on past experience, they must rely on memory. The nature of the memory representations that support these decisions is not yet well understood. A key question concerns the extent to which people recall specific past episodes or whether they have learned a more abstract rule from their past experience. To address this question, we examined the precision of the memories used in risky decisions-from-experience. In three pre-registered experiments, we presented people with risky options, where the outcomes were drawn from continuous ranges (e.g., 100-190 or 500-590), and then assessed their memories for the outcomes experienced. In two preferential tasks, people were more risk seeking for high-value than low-value options, choosing as though they overweighted the outcomes from more extreme ranges. Moreover, in two preferential tasks and a parallel evaluation task, people were very poor at recalling the exact outcomes encountered, but rather confabulated outcomes that were consistent with the outcomes they had seen and were biased towards the more extreme ranges encountered. This common pattern suggests that the observed decision bias in the preferential task reflects a basic cognitive process to overweight extreme outcomes in memory. These results highlight the importance of the edges of the distribution in providing the encoding context for memory recall. They also suggest that episodic memory influences decision-making through gist memory and not through direct recall of specific instances.