The probability weighting of decision-making under heuristics – Are availability heuristics and gambler’s fallacy subject to the possibility effect of prospect theory?

2021 ◽  
Author(s):  
Francisco Pitthan
Keyword(s):  
Decision Making ◽  
Prospect Theory ◽  
Probability Weighting ◽  
Gambler’S Fallacy ◽  
Gambler's Fallacy

scholarly journals Dopaminergic drug effects on probability weighting during risky decision-making

2017 ◽  
Author(s):  
Karita E. Ojala ◽  
Lieneke K. Janssen ◽  
Mahur M. Hashemi ◽  
Monique H. M. Timmer ◽  
Dirk E. M. Geurts ◽  
...  
Keyword(s):  
Decision Making ◽  
Prospect Theory ◽  
Risk Taking ◽  
Subjective Probability ◽  
Probability Weighting ◽  
Risky Decision Making ◽  
Risky Decision ◽  
Placebo Condition ◽  
Pathological Gamblers ◽  
Dopaminergic Drug

AbstractDopamine has been associated with risky decision-making, as well as with pathological gambling, a behavioural addiction characterized by excessive risk-taking behaviour. However, the specific mechanisms through which dopamine might act to foster risk-taking and pathological gambling remain elusive. Here we test the hypothesis that this might be achieved, in part, via modulation of subjective probability weighing during decision-making. Healthy controls (n = 21) and pathological gamblers (n = 16) played a decision-making task involving choices between sure monetary options and risky gambles both in the gain and loss domains. Each participant played the task twice, either under placebo or the dopamine D2/D3 receptor antagonist sulpiride, in a double-blind, counter-balanced, design. A prospect theory modelling approach was used to estimate subjective probability weighting and sensitivity to monetary outcomes. Consistent with prospect theory, we found that participants presented a distortion in the subjective weighting of probabilities, i.e. they overweighted low probabilities and underweighted moderate to high probabilities, both in the gain and loss domains. Compared with placebo, sulpiride attenuated this distortion in the gain domain. Across drugs, the groups did not differ in their probability weighting, although in the placebo condition, gamblers consistently underweighted losing probabilities. Overall, our results reveal that dopamine D2/D3 receptor antagonism modulates the subjective weighting of probabilities in the gain domain, in the direction of more objective, economically rational decision-making.Significance statementDopamine has been implicated in risky decision-making and gambling addiction, but the exact mechanisms underlying this influence remain partly elusive. Here we tested the hypothesis that dopamine modulates subjective probability weighting, by examining the effect of a dopaminergic drug on risk-taking behaviour, both in healthy individuals and pathological gamblers. We found that selectively blocking dopamine D2/D3 receptors diminished the typically observed distortion of winning probabilities, characterized by an overweighting of low probabilities and underweighting of high probabilities. This made participants more linear in their subjective estimation of probabilities, and thus more rational in their decision-making behaviour. Healthy participants and pathological gamblers did not differ in their risk-taking behaviour, except in the placebo condition in which gamblers consistently underweighted losing probabilities.

Behavioral factors affecting investment decision-making in bank stocks on the Ghana stock exchange

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Alexander Quaicoe ◽  
Paul Quaisie Eleke-Aboagye
Keyword(s):  
Decision Making ◽  
Stock Market ◽  
Stock Exchange ◽  
Investment Decisions ◽  
Mental Accounting ◽  
Content Type ◽  
Gambler’S Fallacy ◽  
Gambler's Fallacy ◽  
Ghana Stock Exchange ◽  
Regret Aversion

Purpose The finance literature is awash with papers bordering on the classical assumption that investors are rational in their decision-making, and hence, would always take decisions rationally given the right information, thus making the stock market efficient. This assumption has, however, been found to be at least inadequate given the fact that investors are complex psychological beings full of emotions. This paper aims to investigate the psychological factors that tend to influence the decisions of investors. Design/methodology/approach The study used a questionnaire to survey a total of 350 investors holding stocks of listed banks on the Ghana Stock Exchange (GSE). Findings The study found the existence of various behavioural biases among the investors surveyed. The most dominant factor or bias found to be influencing investment decisions of respondents was herding with nearly 62% weight. Again, biases such as regret aversion and gambler’s fallacy were also found to strongly influence the decisions of investors, along with mental accounting, overconfidence and anchoring. Practical implications The presence of these behavioural biases, therefore suggests that investors do not always take rational decisions, and hence, making the stock market efficient and that as psychological beings, their investment decisions are impacted strongly by their psychology. Originality/value The study used a questionnaire to survey a total of 350 investors holding stocks of listed banks on the GSE with a special focus on overconfidence, anchoring, herding, gambler’s fallacy, mental accounting and regret aversion as the variables of interest, the first of its kind in Ghana.

scholarly journals Decision Making Under the Gambler’s Fallacy: Evidence from Asylum Judges, Loan Officers, and Baseball Umpires *

2016 ◽  
Vol 131 (3) ◽  
pp. 1181-1242 ◽  
Author(s):  
Daniel L. Chen ◽  
Tobias J. Moskowitz ◽  
Kelly Shue
Keyword(s):  
Decision Making ◽  
Alternative Explanation ◽  
Decision Makers ◽  
Contrast Effects ◽  
High Stakes ◽  
Gambler’S Fallacy ◽  
Gambler's Fallacy ◽  
Loan Officers ◽  
Treat All ◽  
Rule Out

Abstract We find consistent evidence of negative autocorrelation in decision making that is unrelated to the merits of the cases considered in three separate high-stakes field settings: refugee asylum court decisions, loan application reviews, and Major League Baseball umpire pitch calls. The evidence is most consistent with the law of small numbers and the gambler’s fallacy—people underestimating the likelihood of sequential streaks occurring by chance—leading to negatively autocorrelated decisions that result in errors. The negative autocorrelation is stronger among more moderate and less experienced decision makers, following longer streaks of decisions in one direction, when the current and previous cases share similar characteristics or occur close in time, and when decision makers face weaker incentives for accuracy. Other explanations for negatively autocorrelated decisions such as quotas, learning, or preferences to treat all parties fairly are less consistent with the evidence, though we cannot completely rule out sequential contrast effects as an alternative explanation.

scholarly journals The gambler's fallacy fallacy (fallacy)

2016 ◽  
Author(s):  
Marko Kovic ◽  
Silje Kristiansen
Keyword(s):  
Decision Making ◽  
Irrational Belief ◽  
Standard Account ◽  
Gambler’S Fallacy ◽  
Simple Heuristic ◽  
Gambler's Fallacy ◽  
Independent And Identically Distributed

The gambler's fallacy is the irrational belief that prior outcomes in a series of events affect the probability of a future outcome, even though the events in question are independent and identically distributed. In this paper, we argue that in the standard account of the gambler's fallacy, the gambler's fallacy fallacy can arise: The irrational belief that all beliefs pertaining to the probabilities of sequences of outcomes constitute the gambler's fallacy, when, in fact, they do not. Specifically, the odds of the probabilities of some sequences of outcomes can be epistemically rational in a given decision-making situation. Not only are such odds of probabilities of sequences of outcomes not the gambler's fallacy, but they can be implemented as a simple heuristic for avoiding the gambler's fallacy in risk-related decision-making. However, we have to be careful not to fall prey to a variant of the gambler's fallacy, the gambler's fallacy fallacy (fallacy), in which we do not calculate odds for the probabilities of sequences that matter, but rather simply believe that the raw probability for the occurrence of a sequence of outcomes is the probability for the last outcome in that sequence.

scholarly journals Prospect Theory with Bounded Temporal Horizon for Modeling Prosumer Behavior in the Smart Grid

Energies ◽  
2021 ◽  
Vol 14 (21) ◽  
pp. 7134
Author(s):  
Mohsen Rajabpour ◽  
Mohammad Yousefvand ◽  
Robert Mulligan ◽  
Narayan B. Mandayam
Keyword(s):  
Decision Making ◽  
Solar Energy ◽  
Smart Grid ◽  
Prospect Theory ◽  
Time Window ◽  
Behavioral Model ◽  
Probability Weighting ◽  
Available Energy ◽  
The Future ◽  
Temporal Horizon

We study prosumer decision-making in the smart grid in which a prosumer must decide whether to make a sale of solar energy units generated at her home every day or hold (store) the energy units in anticipation of a future sale at a better price. Specifically, we enhance a Prospect Theory (PT)-based behavioral model by taking into account bounded temporal horizons (a time window specified in terms of the number of days) that prosumers implicitly impose on their decision-making in arriving at “hold” or “sell” decisions of energy units. The new behavioral model for prosumers assumes that in addition to the framing and probability weighting effects imposed by classical PT, humans make decisions that will affect their lives within a bounded temporal horizon regardless of how far into the future their units may be sold. Modeling the utility of the prosumer with parameters such as the offered price on a day, the available energy units on a day, and the probabilities of the forecast prices, we fit the PT-based proposed behavioral model with bounded temporal horizons to prosumer data collected over 10 weeks from 57 homeowners who generated surplus units of solar power and had the opportunity to sell those units to the local utility at the price set that day by the utility or hold the units for sale in the future. For most participants, a model with a bounded temporal horizon in the range of 1–6 days provided a much better fit to their responses than was found for the traditional EUT-based model, thus validating the need to model PT effects (framing and probability weighting) and bounded temporal horizons imposed in prosumer decision-making.

scholarly journals The Gambler’s Fallacy Is Associated with Weak Affective Decision Making but Strong Cognitive Ability

PLoS ONE ◽  
2012 ◽  
Vol 7 (10) ◽  
pp. e47019 ◽  
Author(s):  
Gui Xue ◽  
Qinghua He ◽  
Xuemei Lei ◽  
Chunhui Chen ◽  
Yuyun Liu ◽  
...  
Keyword(s):  
Decision Making ◽  
Cognitive Ability ◽  
Gambler’S Fallacy ◽  
Gambler's Fallacy
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