Rational trust decisions depend on potential outcomes and expectations of reciprocity. In the trust game, outcomes and expectations correspond to the structural factors of risk and temptation. Two experiments investigated how risk and temptation influenced information search and final decisions in the trust game. The central finding was that trustors underemphasized temptation relative to its effects on the expected value of trust. Instead, trustors made decisions egocentrically, focusing on potential outcomes. In Experiment 1, information search data revealed that trustors often made decisions without learning about the payoffs related to temptation. Experiment 2 investigated whether trustors were able to use temptation to form accurate expectations of reciprocity. Trustors understood, but underestimated, the relationship between temptation and the probability of reciprocity. Moreover, they did not fully consider expectations in their final trust decisions. Changes in potential outcomes had larger effects on trust than comparable changes in expectations. These results suggest that levels of trust are too high when the probability of reciprocity is low and too low when that probability is high.

The expression of emotion can play a significant role in strategic decision-making. In this study, we hypothesized that emotion expression alters behavior in morally charged negotiation. We investigated the impact of facial displays of discrete emotions, specifically anger and sadness, in a morally charged multi-issue negotiation task. Our results indicate that if a negotiator associated moral significance to the object of the negotiation, displays of anger resulted in reduced concession making whereas displays of sadness increased concession making. Moral significance of the issues fostered an emotional matching mechanism of sorrow, where a sorrow expression from one party elicited a sorrow expression from the other. Taken together, the results indicate that emotional expressions can affect morally charged negotiation in ways that can inhibit as well as promote cooperation.

Signal detection theory (SDT) was developed to analyze the behavior of a single judge but also can be used to analyze decisions made by organizations or other social systems. SDT quantifies the ability to distinguish between signal and noise by separating accuracy of the detection system from response bias—the propensity to over-warn (too many false positives) or under-warn (too many misses). We apply SDT techniques to national and state-level data sets to analyze the ability of the child welfare services systems to detect instances of child maltreatment. Blacks have higher rates of referral and the system is less accurate for them than for Whites or Hispanics. The incidence of false positives—referrals leading to unsubstantiated findings—is higher for Blacks than for other groups, as is the incidence of false negatives—children for whom no referral was made but who are in fact neglected or abused. The rate of true positives–children for whom a referral was made and for whom the allegation was substantiated–is higher for Blacks. Values of d′ (signal strength) are roughly the same for Whites, Blacks, and Hispanics but there are pronounced group differences in C (a measure of the location of the decision threshold). Analyses show that the child welfare services system treats Blacks differently from Hispanics and Whites in ways that cannot be justified readily in terms of objective measures of group differences. This study illustrates the potential for JDM techniques such as SDT to contribute to understanding of system-level decision making processes.

In a highly uncertain world, individuals often have to make decisions in situations with incomplete information. We investigated in three experiments how partial cue information is treated in complex probabilistic inference tasks. Specifically, we test a mechanism to infer missing cue values that is based on the discrimination rate of cues (i.e., how often a cue makes distinct predictions for choice options). We show analytically that inferring missing cue values based on discrimination rate maximizes the probability for a correct inference in many decision environments and that it is therefore adaptive to use it. Results from three experiments show that individuals are sensitive to the discrimination rate and use it when it is a valid inference mechanism but rely on other inference mechanisms, such as the cues’ base-rate of positive information, when it is not. We find adaptive inferences for incomplete information in environments in which participants are explicitly provided with information concerning the base-rate and discrimination rate of cues (Exp. 1) as well as in environments in which they learn these properties by experience (Exp. 2). Results also hold in environments of further increased complexity (Exp. 3). In all studies, participants show a high ability to adaptively infer incomplete information and to integrate this inferred information with other available cues to approximate the naïve Bayesian solution.

We asked whether behavioral biases are related to cognitive abilities of Malaysian youth. Frederick’s three-item Cognitive Reflection Test was used to understand the role of behavioral biases concerning behavioral economics and finance. The sample (n = 880) comprised of university students from different parts of Malaysia. We found significant CRT differences as a function of gender, race and age groups. In addition, lower scores on the CRT are correlated positively with time preference and conservatism, but not with risk preference or the conjunction fallacy.

A positive test result for BRCA1/2 gene mutation is a substantial risk factor for breast and ovarian cancer. However, testing is not always covered by insurance, even for high risk women. Variables affecting willingness to pay (WTP) have implications for clinic-based and direct-to-consumer testing. The relative impact of objective and subjective numeracy on WTP, in the context of worry, perceived risk (of having the mutation and developing breast cancer) and family history, was examined in 299 high-risk women, not previously tested for BRCA1/2. Objective and subjective numeracy correlated positively with one another, yet only subjective numeracy correlated (positively) with WTP. This could not be explained by educational level or worry. In line with the numeracy result, other objective factors including family history, age, and Ashkenazi descent were not correlated with WTP. Perceived risk of having a mutation was also correlated with WTP, though perceived risk of developing breast cancer was not, perhaps because it lacks direct connection with testing. Thus, subjective confidence in the ability to interpret test results and perceived risk of a positive test result are more important drivers in paying for BRCA1/2 testing than factors more objective and/or further removed from the testing itself (e.g., perceived risk of developing cancer, family history). Findings underscore the need for genetic counselling that makes probabilistic information accessible and intelligible, so as to build confidence and promote accurate perception of mutation risk and ultimately better decision-making.

We report a series of experiments investigating the influence of feeling lucky or unlucky on people’s choice of known-risk or ambiguous options using the traditional Ellsberg Urns decision-making task. We induced a state of feeling lucky or unlucky in subjects by using a rigged wheel-of-fortune game, which just missed either the bankrupt or the jackpot outcome. In the first experiment a large reversal of the usual ambiguity aversion effect was shown, indicating that feeling lucky made subjects significantly more ambiguity seeking than usual. However, this effect failed to replicate in five refined and larger follow-up experiments. Thus we conclude that there is no evidence that feeling lucky reliably influences ambiguity aversion. Men were less ambiguity averse than women when there were potential gains to be had, but there were no gender differences when the task was negatively framed in terms of losses.

Emotions can shape decision processes by altering valuation signals, risk perception, and strategic orientation. Although multiple theories posit a role for affective processes in mediating the influence of frames on decision making, empirical studies have yet to demonstrate that manipulated affect modulates framing phenomena. The present study asked whether induced affective states alter gambling propensity and the influence of frames on decision making. In a between-subjects design, we induced mood (happy, sad, or neutral) in subjects (N=91) via films that were interleaved with the framing task. Happy mood induction increased gambling and apparently accentuated framing effects compared to sad mood induction, although the effect on framing could have resulted from the fact that the increased tendency to gamble made the framing measure more sensitive. Happy mood induction increased gambling, but not framing magnitude, compared to neutral mood induction. Subjects experiencing a sad mood induction did not exhibit behavioral differences from those experiencing a neutral mood. For those subjects who experienced the happy mood induction, both gambling propensity and framing magnitude were positively correlated with the magnitude of the change in their mood valence. We discuss the broader implications of mood effects on real-world economic decisions.