People wide off the mark in decisions involving risks

February 14th, 2012 - 12:55 pm ICT by IANS  

Washington, Feb 14 (IANS) Even when we know the likelihood of certain outcomes based on our own experiences, we still make decisions at odds with the probability of their occurrence.

Simply told, it implies that people aren’t always good at making informed decisions involving risk, says a new study conducted by researchers from the New York University (NYU) and Universite Paris Descartes, France.

Psychology research on risk and decision-making often employs questions about gambling - where information about probabilities is given explicitly in numerical form, the journal Psychological Science reports.

For instance, in experiments, participants may be asked, “Would you rather have a 50:50 chance of winning $100 or otherwise $0, or would you rather just take $40?”

The consensus is that decision makers, confronted with such possibilities, make poor decisions. They do not maximize their possible winnings and sometimes their choices are logically inconsistent with one another, according to an NYU statement.

“You could imagine taking someone and saying, well, let’s practice them over and over and over again until they’re experts and maybe their decision-making will be perfect,” said Laurence Maloney, professor of pyschology at the NYU Center for Neural Science. He said that is not what happened in his experiment.

Maloney, who co-authored the study with Pascal Mamassian of Universite Paris Descartes, added: “Basically, the key idea is that people have a distorted appreciation of probability, and it doesn’t go away even when you become one of the world’s experts at shooting rectangles.”

In daily life, though, we are rarely given explicit estimates of probability. Therefore, what probability information people have is based primarily on their own past experience.

In fact, researchers in several labs have conjectured that, when information about probability is learned through experience, people make better decisions.

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