Preferences under risk: Content-dependent behavior and psychological processing

A common view in economics and psychology is that decision agents achieve their choices and express their respective preferences by computing probabilistic properties (probabilities and money) from a decision-making context (e.g., von Neumann and Morgenstern, 1947; Tversky and Kahneman, 1992; Starmer, 2000). In this computational processing, the main psychological mechanism requires that decision agents are able to integrate economic (contextual) attributes such as money and probabilities into subjective values; in other words people are able to construct and employ psycho-economic scales. Subsequently, when making a choice, decision agents are supposed to perform tradeoffs between the computed outputs (psycho-economic variables such as expected values) and certain monetary alternatives (see Kahneman and Tversky, 1979; Tversky and Kahneman, 1992; Starmer, 2000). Despite the dominance of descriptive approach to the decision-making (e.g., Kahneman and Tversky, 1979; Tversky and Kahneman, 1992), theorists (Hertwig et al., 2004; Stewart et al., 2006) have recently argued for somewhat different psychological processing in decision-making, without computations (integration of attributes) and tradeoffs. In particular, a non-utilitarian structure of preferences for risk is proposed. In this approach, decision-making is accounted for by experience with sequential events, simple binary comparisons (based on context and memory), and a threshold mechanism (Hertwig et al., 2004; Stewart et al., 2006). However, recent research (Kusev et al., 2009, 2011; Jones and Oaksford, 2011), in an effort to map the nature of human preferences, explored the role of decision-making content (the influence of memory in precautionary decision-making – Kusev et al., 2009, and transactional content on temporal and probabilistic discounting of costs – Jones and Oaksford, 2011). Specifically, we distinguish the influence of decision-making content from that of decision-making context (the description of risk); we see the content of decision-making as experiential (accumulative) cognitive storage system which represents (but not necessarily accurately) experienced events and their associate frequencies as these events occur over time. Accordingly, in this article we elaborate further on the interplay of decision-making context and content, as well as potential “decision” biases as a result of sequential experience in decision-making.