The statistics of small samples are often quite different from those of large samples, and this needs to be taken into account in assessing the rationality of human behavior. Specifically, in evaluating human responses to environmental statistics, it is the effective environment that matters; that is, the environment actually experienced by the agent needs to be considered, not simply long‐run frequencies. Significant deviations from long‐run statistics may arise through experiential limitations of the agent that stem from resource constraints and/or information‐processing (...) bounds. The article draws together recent work from a number of areas in judgment and decision making ranging from randomness perception (Hahn & Warren, ), information sampling (Hertwig & Pleskac, ; Kareev et al., ), and consequences of choice for exploration or exploitation (e.g., Denrell, ) to demonstrate how proper consideration of these deviations leads to reevaluation of behaviors that are otherwise deemed irrational. (shrink)

Humans regularly pursue activities characterized by dramatic success or failure outcomes where, critically, the chances of success depend on the time invested working toward it. How should people allocate time between suchmake‐or‐breakchallenges and safe alternatives, where rewards are more predictable (e.g., linear) functions of performance? We present a formal framework for studying time allocation between these two types of activities, and we explore optimal behavior in both one‐shot and dynamic versions of the problem. In the one‐shot version, we illustrate striking (...) discontinuities in the optimal time allocation policy as we gradually change the parameters of the decision‐making problem. In the dynamic version, we formulate the optimal strategy—defined by agiving‐upthreshold—which adaptively dictates when people should stop pursuing the make‐or‐break goal. We then show that this strategy is computationally inaccessible for humans, and we explore boundedly rational alternatives. We compare the performance of the optimal model against (a) a myopic giving‐up threshold that is easier to compute, and even simpler heuristic strategies that either (b) only decide whether or not to start pursuing the goal and never give up or (c) consider giving up at a fixed number of control points. Comparing strategies across environments, we investigate the cost and behavioral implications of sidestepping the computational burden of full rationality. (shrink)

One of the paradigms in judgment and decision-making involves decision-makers sample information before making a final consequential choice. In the sampling paradigm, certain computational models have been proposed where a set of single or distribution parameters is calibrated to the choice proportions of a group of participants. However, currently little is known on how aggregate and hierarchical models would account for choices made by individual participants in the sampling paradigm. In this paper, we test the ability of aggregate and hierarchical (...) models to explain choices made by individual participants. Several models, Ensemble, Cumulative Prospect Theory, Best Estimation and Simulation Techniques, Natural-Mean Heuristic, and Instance-Based Learning, had their parameters calibrated to individual choices in a large dataset involving the sampling paradigm. Later, these models were generalized to two large datasets in the sampling paradigm. Results revealed that the aggregate models accounted for individual choices better than hierarchical models upon generalization to problems that were like those encountered during calibration. Furthermore, the CPT model, which relies on differential valuing of gains and losses, respectively, performed better than other models during calibration and generalization on datasets with similar set of problems. The IBL model, relying on recency and frequency of sampled information, and the NMH model, relying on frequency of sampled information, performed better than other models during generalization to a challenging dataset. Sequential analyses of results from different models showed how these models accounted for transitions from the last sample to final choice in human data. We highlight the implications of using aggregate and hierarchical models in explaining individual choices from experience. (shrink)

Most investigations into how people make risky choices have employed a simple drosophila: monetary gambles involving stated outcomes and probabilities. People are asked to make decisions from description . When people decide whether to back up their computer hard drive, cross a busy street, or go out on a date, however, they do not enjoy the convenience of stated outcomes and probabilities. People make such decisions either in the void of ignorance or in the twilight of their own often limited (...) experience of such real-world options. In the latter case, they make decisions from experience . Recent research has consistently documented that decisions from description and decisions from experience can lead to substantially different choices. Key in this description–experience gap is people’s treatment of rare events. In this paper, I briefly review studies that have documented the description–experience gap, offer several explanations for this gap, and discuss to what extent people’s decisions from experience are in conflict with benchmarks of rationality. (shrink)