Errors in reacting to the probability

자료1: http://cbdr.cmu.edu/seminar/Burson.pdf

Title: Can Two Wrongs Make a Right?: Accidental Accuracy in Predictions of Others’ Preferences Under Uncertainty

※ 메모: 

Step 2 – Perceptions of the Impact of Beliefs on Others: Under-Extremity and a Counterclockwise Bias

People frequently weigh likelihood in a manner that over-emphasizes the differences between small probabilities and impossibility and between large probabilities and certainty (Camerer and Ho 1994; Gonzalez and Wu 1999; Kilka and Weber 1998; Tversky and Fox 1995; Wu and Gonzalez 1996). For instance, Tversky and Kahneman (1992) found that their median participant was indifferent between receiving (a) a 1% chance at $200 and (b) $10 for sure and was also indifferent between receiving (c) a 99% chance at $200 and (d) $188 for sure. Thus, the impact of the first upward hundredth of movement away from impossibility was substantial, worth $10, and the impact of the first downward hundredth of movement away from certainty was substantial too, worth $12. However, the impact of each of the 98 intermediate hundredths was therefore negligible, worth only $178 in total or about $1.80 per hundredth. This pattern is usually represented using an inverse S-shaped w function, as shown in Figure 1B. The pronounced curvature near the endpoints entails w(p) (greater thean) p for small p and w(p) (smaller than) p for large p. Such “overweighting” of small probabilities and “underweighting” of large probabilities corresponds to the over-emphasis on departures from impossibility and certainty.

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자료2: http://www.chicagogsb.edu/capideas/win01/decisions.html

Title: The Business of Managing Decisions

※ 메모: 

Errors in reacting to the probability of an event can be explained as follows. One famous study found that the typical person was indifferent between receiving a 1 percent chance of winning $200 and receiving $10 without doubt and was also indifferent between receiving a 99 percent chance of winning $200 and receiving $188 for certain.

That is, people reacted to probabilities in a way that made the first hundredth of probability worth $10, the last hundredth worth $12, but the ninety-eight intermediate hundredths worth only $178, or about $1.80 per hundredth.

The impact of the small 1 percent probability is even more exaggerated when emotions come into play. In an experiment by Rottenstreich and Hsee, a group of students imagined that they could receive either the opportunity to meet and kiss their favorite movie star or $50 in cash. Most preferred cash to a kiss.

But when another group of students was asked to imagine that they could take part in either a lottery offering a 1 percent chance of winning the opportunity to meet and kiss their favorite movie star or a lottery offering a 1 percent chance of winning $50 in cash, most bet on the movie star.

Despite the fact that in certain conditions, the cash was preferred to the kiss, in uncertain situations, the kiss was preferred to the cash.

When making decisions, people are likely to react to the image and affect conjured up by these possibilities, such as the relatively exciting and emotion-laden kiss as compared to the relatively pallid and emotion-free cash, and not to the assessed likelihood of these possibilities.