“Decisions from experience” = sampling error + prospect theory: Reconsidering Hertwig, Barron, Weber & Erev (2004)

By Craig R. Fox, L. Hadar. Judgment and Decision Making, 2006

210 citations recorded by the source corpus.

According to prospect theory, people overweight low probability events and underweight high probability events. Several recent papers (notably, Hertwig, Barron, Weber & Erev, 2004) have argued that although this pattern holds for “description-based” decisions, in which people are explicitly provided with probability distributions over potential outcomes, it is actually reversed in “experience-based” decisions, in which people must learn these distributions through sampling. We reanalyze the data of Hertwig et al. (2004) and present a replication to determine the extent to which their phenomenon can be attributed to sampling error (a statistical rather than psychological phenomenon) versus underestimation of rare events (i.e., judgmental bias) versus actual underweighting of judged probabilities. We find that the apparent reversal of prospect theory in decisions from experience can be attributed almost entirely to sampling error, and are consistent with prospect theory and the two-stage model of decision under uncertainty (Fox & Tversky, 1998).

Subfields: Applied Psychology, Cognitive Neuroscience, General Decision Sciences

View Paper: https://www.semanticscholar.org/paper/9414fb3744e0ed9e8a1bbb504a407dad95b5c852

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In Applied Psychology

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Citations in the corpus

Prospect Theory and the Brain (2009, background): “(For further discussion of these issues see Hertwig et al., 2004 and Fox and Hadar, 2006).”
The Description-Experience Gap in Risky Choice: The Role of Sample Size and Experienced Probabilities (2008, methodology): “In a comment to Hertwig et al. (2004), Fox and Hadar (2006) argued that ‘‘our internal analysis of [Hertwig et al.’s] data and our replication show that the so-called ‘underweighting’ of low-probability events in decisions from experience is driven almost entirely by a tendency to undersample…”
Decisions From Experience and Statistical Probabilities: Why They Trigger Different Choices Than a Priori Probabilities (2010, background): “Several investigations of decisions from experience (Fox & Hadar, 2006; Hau et al., 2008; Jessup, Bishara, & Busemeyer, 2008; Rakow et al., 2008; Ungemach et al., 2009) have used the same set of problems or included some or all of the problems investigated by Hertwig et al. (2004) in their problem…”
The role of experience in the Gambler's Fallacy (2010, background): “Notably, while small probabilities are overweighted in decisions from description (Kahneman & Tversky, 1979; Tversky & Kahneman, 1992) they tend to be underweighted in decisions form experience (Barron & Erev, 2003; Erev & Barron, 2005; Fox & Hadar, 2006; Hertwig, Barron, Weber, & Erev, 2004).”