Decisions from Global Impressions

DECISIONS FROM GLOBAL IMPRESSIONS

The evidence suggests the hypothesis that focal attention and salience contribute to both the overestimation of unlikely events and the overweighting of unlikely outcomes. Salience is enhanced by mere mention of an event, by its vividness, and by the format in which probability is described. There are exceptions, of course, in which focusing on an event does not raise its estimated probability: cases in which an erroneous theory makes an event appear impossible even when you think about it, or cases in which an inability to imagine how an outcome might come about leaves you convinced that it will not happen. The bias toward overestimation and overweighting of salient events is not an absolute rule, but it is large and robust.

There has been much interest in recent years in studies of choice from experience, which follow different rules from the choices from description that are analyzed in prospect theory. Participants in a typical experiment face two buttons. When pressed, each button produces either a monetary reward or nothing, and the outcome is drawn randomly according to the specifications of a prospect (for example, “5% to win $12” or “95% chance to win $1”). The process is truly random, so there is no guarantee that the sample a participant sees exactly represents the statistical setup. Some experiments compare buttons with approximately equal expected values, one riskier (more variable) than the other. (For example, one button may produce $10 on 5% of the trials and the other $1 on 50% of the trials). Choice from experience is implemented by exposing the participant to many trials in which she can observe the consequences of pressing one button or another. On the critical trial, she chooses one of the two buttons, and she earns the outcome on that trial. Choice from description is realized by showing the subject the verbal description of the risky prospect associated with each button (such as “5% to win $12”) and asking her to choose one. As expected from prospect theory, choice from description yields a possibility effect—rare outcomes are overweighted relative to their probability. In these choice-from-experience experiments, overweighting was not observed, and underweighting was common.

The experimental situation of choice by experience is intended to represent many situations in which we are exposed to variable outcomes from the same source. A restaurant that is usually good may occasionally serve a brilliant or an awful meal. Your friend is usually good company, but he sometimes turns moody and aggressive. California is prone to earthquakes, but they happen rarely. The results of many experiments suggest that rare events are not overweighted when we make decisions such as choosing a restaurant or tying down the boiler to reduce earthquake damage.

The interpretation of choice from experience is not yet settled, but there is general agreement on one major cause of underweighting of rare events, both in experiments and in the real world: many participants never experience the rare event! Most Californians have never experienced a major earthquake, and in 2007 many bankers had not personally experienced a financial crisis on the scale of the one that followed. Ralph Hertwig and Ido Erev note that “chances of rare events (such as the burst of housing bubbles) receive less impact than they deserve according to their objective probabilities.” They point to the public’s tepid response to long-term environmental threats as an example.

These examples of neglect are both important and easily explained, but underweighting also occurs when people have actually experienced the rare event. Suppose you have a complicated question that two colleagues on your floor could probably answer. You have known them both for years and have had many occasions to observe and experience their character. Adele is fairly consistent and generally helpful, though not exceptional on that dimension. Brian is not quite as friendly and helpful as Adele most of the time, but on some occasions he has been extremely generous with his time and advice. Whom will you approach?

Consider two possible views of this decision:

• It is a choice between two gambles. Adele is closer to a sure thing; the prospect of Brian is more likely to yield a slightly inferior outcome, with a low probability of a very good one. The rare event will be overweighted by a possibility effect, favoring Brian.

• It is a choice between your global impressions of Adele and Brian. The good and the bad experiences you have had are pooled in your representation of their normal behavior. Unless the rare event is so extreme that it comes to mind separately (Brian once verbally abused a colleague who asked for his help), the norm will be biased toward typical and recent instances, favoring Adele.

In a two-system mind, the second interpretation appears far more plausible. System 1 generates global representations of Adele and Brian, which include an emotional attitude and a tendency to approach or avoid. Nothing beyond a comparison of these tendencies is needed to determine the door on which you will knock. Unless the rare event comes to your mind explicitly, it will not be overweighted. Applying the same idea to the experiments on choice from experience is straightforward. As they are observed generating outcomes over time, the two buttons develop integrated “personalities” to which emotional responses are attached.

The conditions under which rare events are ignored or overweighted are better understood now than they were when prospect theory was formulated. The probability of a rare event will (often, not always) be overestimated, because of the confirmatory bias of memory. Thinking about that event, you try to make it true in your mind. A rare event will be overweighted if it specifically attracts attention. Separate attention is effectively guaranteed when prospects are described explicitly (“99% chance to win $1,000, and 1% chance to win nothing”). Obsessive concerns, vivid images, concrete representations (1 of 1,000), and explicit reminders (as in choice from description) all contribute to overweighting. When a rare event fails to attract separate attention, it can instead be neglected. When it comes to rare probabilities, our mind is not designed to get things quite right. For the residents of a planet that may be exposed to events no one has yet experienced, this is not good news.