The St. Petersburg Paradox is a famous economic and philosophical puzzle that has generated numerous conflicting explanations. To shed empirical light on this phenomenon, we examined subjects’ bids for one St. Petersburg gamble with a real monetary payment. We found that bids were typically lower than twice the smallest payoff, and thus much lower than is generally supposed. We also examined bids offered for several hypothetical variants of the St. Petersburg Paradox. We found that bids were weakly affected by truncating the gamble, were strongly affected by repeats of the gamble, and depended linearly on the initial “seed” value of the gamble. One explanation, which we call the median heuristic, strongly predicts these data. Subjects following this strategy evaluate a gamble as if they were taking the median rather than the mean of the payoff distribution. Finally, we argue that the distribution of outcomes embodied in the St. Petersburg paradox is so divergent from the Gaussian form that the statistical mean is a poor estimator of expected value, so that the expected value of the St. Petersburg gamble is undefined. These results suggest that this classic paradox has a straightforward explanation rooted in the use of a statistical heuristic.

The group-diffusion effect is the tendency for people to judge themselves to be less likely to experience a negative outcome as the total number of people exposed to the threat increases — even when the probability of the outcome is explicitly presented (Yamaguchi, 1998). In Experiment 1 we replicated this effect for two health threat scenarios using a variant of Yamaguchi’s original experimental paradigm. In Experiment 2, we showed that people also judge themselves to be less likely to be selected in a lottery as the number of people playing the lottery increases. In Experiment 3, we showed that explicitly presenting the number of people expected to be selected eliminates the group-diffusion effect, and in Experiment 4 we showed that presenting the number expected to be affected by a health threat without presenting the total number exposed to the threat produces a reverse effect. We propose, therefore, that the group-diffusion effect is related to the ratio bias. Both effects occur when people make risk or likelihood judgments based on information presented as a ratio. The difference is that the group-diffusion effect occurs when the denominator of the relevant ratio is more salient than the numerator, while the ratio bias occurs when the numerator is more salient than the denominator.

Although theories from economics and evolutionary biology predict that one's age, health, and survival probability should be associated with one's subjective discount rate (SDR), few studies have empirically tested for these links. Our study analyzes in detail how the SDR is related to age, health, and survival probability, by surveying a sample of individuals in townships around Durban, South Africa. In contrast to previous studies, we find that age is not significantly related to the SDR, but both physical health and survival expectations have a U-shaped relationship with the SDR. Individuals in very poor health have high discount rates, and those in very good health also have high discount rates. Similarly, those with expected survival probability on the extremes have high discount rates. Therefore, health and survival probability, and not age, seem to be predictors of one's SDR in an area of the world with high morbidity and mortality.

Recently it has been observed that different choices can be made about structurally identical risky decisions depending on whether information about outcomes and their probabilities is learned by description or from experience. Current evidence is equivocal with respect to whether this choice “gap” is entirely an artefact of biased samples. The current experiment investigates whether a representational bias exists at the point of encoding by examining choice in light of decision makers’ mental representations of the alternatives, measured with both verbal and nonverbal judgment probes. We found that, when estimates were gauged by the nonverbal probe, participants presented with information in description format (as opposed to experience) had a greater tendency to overestimate rare events and underestimate common events. The choice gap, however, remained even when accounting for this judgment distortion and the effects of sampling bias. Indeed, participants’ estimation of the outcome distribution did not mediate their subsequent choice. It appears that experience-based choices may derive from a process that does not explicitly use probability information.

The gambler’s fallacy (Tune, 1964) refers to the belief that a streak is more likely to end than chance would dictate. In three studies, participants exhibited a retrospective gambler’s fallacy (RGF) in which an event that seems rare appears to come from a longer sequence than an event that seems more common. Study 1 demonstrates this bias for streaks, while Study 2 does so with single rare events and shows that the appearance of rarity is more important than actual rarity. Study 3 extends these findings from abstract gambling domains into real world domains to demonstrate the generalizability of the effects. The RGF follows from the law of small numbers (Tversky & Kahneman, 1971) and has many applications, from perceptions of the social world to philosophical debates about the existence of multiple universes.

One of the core challenges of decision research is to identify individuals’ decision strategies without influencing decision behavior by the method used. Bröder and Schiffer (2003) suggested a method to classify decision strategies based on a maximum likelihood estimation, comparing the probability of individuals’ choices given the application of a certain strategy and a constant error rate. Although this method was shown to be unbiased and practically useful, it obviously does not allow differentiating between models that make the same predictions concerning choices but different predictions for the underlying process, which is often the case when comparing complex to simple models or when comparing intuitive and deliberate strategies. An extended method is suggested that additionally includes decision times and confidence judgments in a simultaneous Multiple-Measure Maximum Likelihood estimation. In simulations, it is shown that the method is unbiased and sensitive to differentiate between strategies if the effects on times and confidence are sufficiently large.

Hammond (1996) argued that much of the research in the field of judgment and decision making (JDM) can be categorized as focused on either coherence or correspondence (C&C) and that, in order to understand the findings of the field, one needs to understand the differences between these two criteria. Hammond’s claim is that conclusions about the competence of judgments and decisions will depend upon the selection of coherence or correspondence as the criterion (Hammond, 2008). First, I provide an overview of the terms coherence and correspondence (C&C) as philosophical theories of truth and relate them to the field of JDM. Second, I provide an example of Hammond’s claim by examining literature on base rate neglect. Third, I examine Hammond’s claim as it applies to the broader field of JDM. Fourth, I critique Hammond’s claim and suggest that refinements to the C&C distinction are needed. Specifically, the C&C distinction 1) is more accurately applied to criteria than to researchers, 2) should be refined to include two important types of coherence (inter and intrapersonal coherence) and 3) neglects the third philosophical theory of truth, pragmatism. Pragmatism, as a class of criteria in JDM, is defined as goal attainment. In order to provide the most complete assessment of human judgment possible, and understand different findings in the field of JDM, all three criteria should be considered.

In recent years, numerous studies comparing intuition and deliberation have been published. However, relatively little is known about the cognitive processes underlying the two decision modes. In two studies, we analyzed the effects of decision mode instructions on processes of information search and integration, using eye-tracking technology in a between-participants (Study 1) and a within-participants (Study 2) design. Our findings indicate that the instruction to deliberate does not necessarily lead to qualitatively different information processing compared to the instruction to decide intuitively. We found no difference in mean fixation duration and the distribution of short, medium and long fixations. Short fixations in particular prevailed under both decision mode instructions, while long fixations indicating a conscious and calculation-based information processing were rarely observed. Instruction-induced deliberation led to a higher number of fixations, a more complete information search and more repeated information inspections. We interpret our findings as support for the hypothesis that intuitive and deliberate decision modes share the same basic processes which are supplemented by additional operations in the deliberate decision mode.

Standard preference models in consumer research assume that people weigh and add all attributes of the available options to derive a decision, while there is growing evidence for the use of simplifying heuristics. Recently, a greedoid algorithm has been developed (Yee, Dahan, Hauser & Orlin, 2007; Kohli & Jedidi, 2007) to model lexicographic heuristics from preference data. We compare predictive accuracies of the greedoid approach and standard conjoint analysis in an online study with a rating and a ranking task. The lexicographic model derived from the greedoid algorithm was better at predicting ranking compared to rating data, but overall, it achieved lower predictive accuracy for hold-out data than the compensatory model estimated by conjoint analysis. However, a considerable minority of participants was better predicted by lexicographic strategies. We conclude that the new algorithm will not replace standard tools for analyzing preferences, but can boost the study of situational and individual differences in preferential choice processes.

Individual differences in cognitive abilities and skills can predict normatively superior and logically consistent judgments and decisions. The current experiment investigates the processes that mediate individual differences in risky choices. We assessed working memory span, numeracy, and cognitive impulsivity and conducted a protocol analysis to trace variations in conscious deliberative processes. People higher in cognitive abilities made more choices consistent with expected values; however, expected-value choices rarely resulted from expected-value calculations. Instead, the cognitive ability and choice relationship was mediated by the number of simple considerations made during decision making — e.g., transforming probabilities and considering the relative size of gains. Results imply that, even in simple lotteries, superior risky decisions associated with cognitive abilities and controlled cognition can reflect metacognitive dynamics and elaborative heuristic search processes, rather than normative calculations. Modes of cognitive control (e.g., dual process dynamics) and implications for process models of risky decision-making (e.g., priority heuristic) are discussed.

Diener and colleagues (2001) illustrated that individuals rely heavily on endings to evaluate the quality of a life. Two studies investigated the potential for posthumous events to affect rated life quality, calling into question the intuitive “ending” of a life at death. Undergraduates read a series of short life narratives to assess the consequences of posthumous reversals of fortune on judgments of the goodness and happiness of the life. In a 2x2 within-subjects design, lives positive and negative in valence were displayed twice: once from birth to death and once each life was followed by a posthumous event of opposite valence. Results demonstrated that posthumous reversals of fortune shift judgments of the goodness and happiness of the life in the direction of the valence of the posthumous event. These effects were not related to an individual’s religiosity or the degree to which the life made an engaging story. We suggest that the posthumous happy effect may be a case of a more general process, which we call retroactive re-evaluation.

Previous research demonstrates overestimation of rare events in judgment tasks, and underweighting of rare events in decisions from experience. The current paper presents three laboratory experiments and a field study that explore this pattern. The results suggest that the overestimation and underweighting pattern can emerge in parallel. Part of the difference between the two tendencies can be explained as a product of a contingent recency effect: Although the estimations reflect negative recency, choice behavior reflects positive recency. A similar pattern is observed in the field study: Immediately following an aversive rare-event (i.e., a suicide bombing) people believe the risk decreases (negative recency) but at the same time exhibit more cautious behavior (positive recency). The rest of the difference is consistent with two well established mechanisms: judgment error and the use of small samples in choice. Implications for the two-stage choice model are discussed.

Sacred values are different from secular values in that they are often associated with violations of the cost-benefit logic of rational choice models. Previous work on sacred values has been largely limited to religious or territorial conflicts deeply embedded in historical contexts. In this work we find that the Iranian nuclear program, a relatively recent development, is treated as sacred by some Iranians, leading to a greater disapproval of deals which involve monetary incentives to end the program. Our results suggest that depending on the prevalence of such values, incentive-focused negotiations may backfire.

This paper introduces historical aspects of the concepts correspondence and coherence with emphasis on the nineteenth century when key aspects of modern science were emerging. It is not intended to be a definitive history of the concepts of correspondence and coherence as they have been used across the centuries in the field of inquiry that we now call science. Rather it is a brief history that highlights the apparent origins of the concepts and provides a discussion of how these concepts contributed to two important science related controversies. The first relates to aspects of evolution in which correspondence and coherence, as competing theories of truth, played a central role. The controversy about evolution continues into the beginning of the twenty-first century in forms that are recognizably similar to those of the middle of the nineteenth century. The second controversy relates to the etiology of blood-born infections (sepsis) during childbirth (childbed fever). In addition to correspondence and coherence, the authors introduce other theories of truth and discuss an evolutionarily cogent theory of truth, the pragmatic theory of truth.

Taxation policy is driven by many factors, including public opinion, but little research has examined the strength and stability of the public’s taxation preferences. This paper demonstrates one way in which preferences for progressiveness depend on the framing of the question asked. Participants indicated how they would share a fixed tax burden between two individuals who earned different amounts of money, either by adjusting the amount of tax paid by the two individuals, or by adjusting the amount of post-tax income retained. The units in which tax was described — amount of money or percentage tax rate — were manipulated orthogonally. There was a strong metric effect: Participants favored progressiveness more when tax was described as a percentage rather than amount. However, there was also a clear interaction: for amounts, participants favored progressiveness significantly more when considering post-tax money retained rather than tax paid; for percentages, no such effect was found.

Previous research has demonstrated that Bayesian reasoning performance is improved if uncertainty information is presented as natural frequencies rather than single-event probabilities. A questionnaire study of 342 college students replicated this effect but also found that the performance-boosting benefits of the natural frequency presentation occurred primarily for participants who scored high in numeracy. This finding suggests that even comprehension and manipulation of natural frequencies requires a certain threshold of numeracy abilities, and that the beneficial effects of natural frequency presentation may not be as general as previously believed.

The current study is based on a field study of the 2006 Israel-Lebanon war that was conducted in two waves, the first two weeks after the end of the war, and the second 18 months later (2008). The purpose of the study was to examine recalled emotions and perceived risks induced by manipulation using a short videoclip that recalled the sounds of the alarms and the sights of the missile attacks during the war. Before filling in the study questionnaire in 2008, the experimental group watched a short videoclip recalling the events of the war. The control group did not watch the video before filling in the questionnaire. Using the data provided by questionnaires, we analyzed the effect of recalled emotions on perceived risks in two different regions in Israel: the northern region, which was under missile attack daily during the war, and the central region, which was not under missile attacks. The videoclip had a strong effect on the level of recalled emotions in both regions, but it did not affect risk judgments. The results of the analytical framework in the northern region support both the valence approach, in which negative emotion increases pessimism about risk (Johnson & Tversky, 1983), and the modified appraisal tendency theory, which implies different effects for different emotions (Lerner & Keltner, 2000). The current study emphasizes the effects of recalled emotion in the context of the 2006 Israel-Lebanon war on perceived risks among those in the northern region who were under direct attack compared to those who were not directly exposed to the war. Understanding people’s responses to stressful events is crucial, not only when these events take place but also over time, since media-induced emotions can influence appraisals and decisions regarding public policies.

Some people find it more difficult to delay rewards than others. In three experiments, we tested a “future self-continuity” hypothesis that individual differences in the perception of one’s present self as continuous with a future self would be associated with measures of saving in the laboratory and everyday life. Higher future self-continuity (assessed by a novel index) predicted reduced discounting of future rewards in a laboratory task, more matches in adjectival descriptions of present and future selves, and greater lifetime accumulation of financial assets (even after controlling for age and education). In addition to demonstrating the reliability and validity of the future self-continuity index, these findings are consistent with the notion that increased future self-continuity might promote saving for the future.

We investigated how frequency and amount of punishment affect the decision making of Iranian subjects. In our first experiment, performing a computer-based Persian version of the Iowa Gambling Task (IGT), our subjects scored remarkably lower than their Western counterparts. Moreover, our subjects chose more frequently and more rapidly from decks that had less frequent but larger amounts of punishments in comparison to decks that had more frequent punishments with smaller amounts. In our second experiment, subjects did not differentiate between decks with the same frequency of punishment but with different punishment amounts. However, among decks with the same amount but different frequency of punishment, a significant preference was apparent towards decks with less frequency of punishment. Our results differ from previous studies, indicating a different strategy in risky decision making among healthy adult Iranian subjects, as they show low attention to the amount of punishment and are more concerned with the frequency of punishment.