The impact of descriptions and incentives on the simultaneous underweighting and overestimation of rare events

Abstract

We replicate and extend work demonstrating that choice and probability estimation can be dissociated through the coexistence of contradictory reactions to rare events. In the context of experience-based risky choice, we find the simultaneous underweighting of rare events in choice and their overestimation in probability judgement. This tendency persisted in the presence of accurate descriptions of rare event occurrence (Experiment 1), but was attenuated by incentivizing accurate probability estimates (Experiment 2). The implications of these results for popular models of risky choice are briefly discussed.


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