Differences in information searching in risk judgment between sophisticated and

non sophisticated subjects.

Agata MichalaszekJoanna Sokolowska

Perceived risk

• What is perceived risk?

• people do not need more explanation to judge riskiness

• risk rates are consistant

• no common definition of perceived risk

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Perceived risk

two major point of controversy:

1. the relative input of positive and negative information into risk judgment

2. the relative input of payoffs and probabilities into risk judgment

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R–V Models – Markowitz:

• decisions are based on both expected return and its uncertainty or variability (related to risk) (Markowitz, 1959)

• risk is associated with the dispersion of the random variable

• risk as indepedent concept

WTP(x) = f {V(x), R(x)}

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Perceived risk as dispersion

• X1: [+10, 50%; -10, 50%]

• X2: [+20, 50%; -10, 50%]

• X3: [+10, 50%; -20, 50%]

R(x1) < R(x2)=R(x3)

Subjects’ rates: R(x2) < R(x1) < R(x3)5

Input of negative outcome into risk judgment is more important

Positive information

• In everyday language:– emphasise negative connotation to the possibility of

outcomes – underline extra rewards that can be gained only at the

price of uncertainty and possible loss

• Proverbs:– uncertainty (‘do not buy a pig in a poke’) – possible loss (‘gold may be bought to dear’)– necessary condition of success (‘nothing ventured, nothing

gained’)

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Payoffs vs. probabilities

Risk jugdment:

• Probabilities are more important in experiments

• Values are more important in real life situations– difficult to asses probability in everyday activities

• Open questions – few about probabilities, much more about payoffs in different categories(Tyszka and Zaleskiewicz, 2006)

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Payoffs vs. probabilities

Methodology:• different scales for payoffs and probabilities

Resolution approach:

• provide with vague magnitude of payoffs and probabilities

• use process tracing method – Mouselab

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Vague information

• in USA new virus of dangerous flu is spreading

• it is necessary to rate riskiness of a purchase of the various vaccines for employees

• both vaccines are safe in the same way and have the same price

• differences with:seriousness of negative effectsprobability of those effects

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Vague information

Precise information:• 5% chances of negative effects• $45 costs

Imprecise information:• Vaccine A Vaccine B• 3-7% chances of negative 5% chances of negative

effects effects• $75 costs $45-105 costs

(Kuhn and Budescu,1996)10

Process tracing method

• investigating the process by investigating which information is used by people when judging risk

• Information:– type– amount– order – reaction time

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Educational background

Empirical findings:• people in general use incorrect representation of

random events• gambler’s fallacy• law of small numbers• subaaditivity of probability for complementary

events • conjunction fallacy

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Educational background

• people cannot get information about probability in real life

‘expert’s’ group:• people who are trained to use probabilistic

representation of reality• greater knowlegde of mathematics and statistics• more sensitive to probabilities

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Research questions and hypothesis

• What is the relative input of information about payoffs and probabilities into risk judgment?

• Information about negative aspects of a risky situation impact risk judgment more than information about positive aspects.

• Training in statistics and mathematics enhanced the relative importance of information about probabilities in risk judgment (and has no impact on relative importance of information about positive and negative aspects).

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Experiment - design

• respondents were presented with 6 different risky situations related to financial risk

• every situation consisted of 3 alternative options (A, B, C)

• each option consisted of 5 possible outcomes – 2 losses, break even, 2 gains– 2 losses, 3 gains

• payoffs were quantitative

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Experiment - design

• information was presented in the table (Payne, 1976)

• MouseLabWEB (Willemsen and Johnson 2006)

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max gain

pmax

gain

gain pgain gain/0 p(g or 0) loss ploss max loss

pmax loss

A

B

C

http://www.mouselabweb.org/

Experiment - design

• information was hidden behind boxes – to access the information, the decision maker clicked the mouse pointer over the box on the screen

• participants could disclose as much detailed information about the options as necessary

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max gain

pmax

gain

gain pgain gain/0 p(g or 0) loss ploss max loss

pmax loss

A

B

C

Experiment - design

++ p++ + p+ +/0 p+/0 - p- - - p- -

A

B

C

- - p- - - p- +/0 p+/0 + p+ ++ p++

A

B

C

two orders of location of gains and losses

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Experiment - design

• Respondents’ taks – judge riskiness of each option

Measure of perceived risk• subjects rated riskiness on an 11-point scale (from 0 ‘not risky

at all’ to 10 ‘extremely risky’)

• Respondents:NASA group – 75: Polish group – 67: female – 33 female – 35 male – 42 male – 32

0 10

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Results• ca 50% available information• in NASA group more acquired information

(M=19,29; SD=9,74)

F(1, 125)=7,69; p<0,01

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Results• no effect of order• ratio positive/negative

NASA group: Polish group:from 1,13 to 0,91 from 1,02 to 0,91

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F(1, 111)=0,24; p>0,05

Results

• no differences between groups

• the same amount of positive and negative – ratio close to 1

• no correlation:– positive information and risk rates, r=0,07; p>0,05– negtive informatin and risk rates, r=0,01; p>0,05

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Results• ratio value/probability

NASA group: Polish group:from 0,93 to 0,78 from 1,11 to 0,94

F(1, 104)=4,69; p<0,05

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Results

• differences between groups– more payoffs – Polish group – more probabilities – NASA group

• NASA group: Polish group:from 0,93 to 0,78 from 1,11 to 0,94

• more probiabilites considered in NASA group, t(139)=2,76; p<0,01.

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Results – risk rates

• no differences between groups (t(140)=0,28; p>0,05)

• positive correlations between risk rates and information about probabilitiesNASA group: Polish group:r=0,41; p<0,001 r=0,36; p<,01

• more probabilities – higher risk rates

• negative correlation for values25

Conclusions:• In NASA group acquired more information and more

information about probabilities

• In both groups the same amount of positive and negative

• More probabilities – more risky

• Risk rates similar in both grups

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Thank you.

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