The Context-Dependence of the Process of Risky Choice
Alsharawy, Abdelaziz Mohammed
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The evaluation of risk is a fundamental aspect of decision-making and influences important outcomes, such as in the domain of financial and health behavior. In many economic applications, risk attitudes are assumed to be inherently stable. Nonetheless, behavioral tasks that elicit risk preferences have shown temporal inconsistencies. The instability of risk preferences can be attributed to several factors such as the way information is presented (framing effects), personal past experiences, and experienced emotions. We conduct four studies in this dissertation to shed light on the state dependency of risk attitudes and on the decision process of risky choice. Chapter 2 examines, using a laboratory experiment, how high stakes in risky choices influence physiological arousal, as measured via skin conductance, pulse rate and pupil size, and attention, as measured via gaze bias and saccades. We link the changes in arousal and attention accompanying high stakes to changes in risk aversion. Moreover, we develop and test a Sequential Sampling Model (SSM), the arousal-modulated Attentional Drift Diffusion Model (aADDM), linking reaction time and choice while allowing attention and its interaction with arousal to modulate the evaluation process of risky alternatives. High stakes caused changes in attention toward the safe option's attributes, heightened physiological arousal, and increased risk aversion. Results from the aADDM, demonstrate that the values of the high attributes are discounted when participants attend to the low attributes, with arousal amplifying this process further. Chapter 3, using a laboratory experiment, investigates how incentives and emotional experiences influence the adaptation process across high and low volatility contexts in risky choice. Due to the brain's computational capacity limitations, perception is optimized to detect differences within a narrow range of stimuli. We show that this adaptation process is itself context-dependent, with stronger incentives, heightened arousal, or more unpleasant feelings increasing payoff responsivity under high volatility. Chapter 4, using survey data, focuses on fear responses during the COVID-19 pandemic and risk perception of the health- and financial-related consequences of the crisis. We show that women report higher fear of the COVID-19 pandemic compared to men, modulating the gender differences in preventative health behaviors. Women also perceive the health risks of COVID-19, and not financial risks, to be greater than men. Chapter 5, using vignette experiments, demonstrates that betrayal aversion, or hesitancy regarding the risk of being betrayed in an environment involving trust, is an important preference construct in the decision to become vaccinated and is not accounted for by widely used vaccine hesitancy measures. We show that people are significantly less willing to get vaccinated when the associated risk involved the vaccine actively contributing to the cause of death. We also find that betrayal aversion is amplified with an active role of government or scientists. Moreover, we test an exogenous intervention that increases willingness to vaccinate without mitigating betrayal aversion. JEL codes: D81, D83, D87, D91, I12, J16
General Audience Abstract
Many decisions involve varying levels of uncertainty and perceived reward like investing in a risky asset or getting a vaccination during a pandemic. These risky decisions, however, require consuming scarce brain resources. In addition, one's own feelings that are altered by the decision context itself or are naturally occurring during daily activities may influence risky decision-making. The scientific mission of this dissertation is to advance our understanding on how the decision context and experienced emotions influence not only risky decisions but also the way by which the decisions are being made. Our results show that real and high monetary rewards reduce financial risk-taking while altering attention and the perception of information. We also find that stronger incentives activate changes in the autonomous nervous system, such as a racing heart rate, increased sweating, or pupil dilation, and increase self-reports of emotional arousal. Importantly, we demonstrate, via computational modeling and experimental analysis, the role of emotional responses in modulating both attention and value perception of rewards in risky choice. In other words, we find that emotional experiences play an important role in adapting the process by which rewards are evaluated and perceived. Since significant life events, such as experiencing the COVID-19 pandemic, can lead to substantial uncertainty and emotional distress, we collected survey data upon the crisis' onset to investigate the impact on different aspects of behavior including adherence to prevention measures and willingness to get vaccinated. We find that women, compared to men, reported higher fear of the COVID-19 pandemic and perceived greater negative health risks of the crisis. We attribute observed differences in adherence to prevention measures between men and women to gender differences in emotional responsivity to the pandemic. In addition, we demonstrate the importance of contextual factors, which drive feelings associated with the risk of betrayal, in the decision to become vaccinated. Taken together, the findings in this dissertation highlight the integral role of emotional experiences, which vary with incentives or because of previous experiences, in decision-making under risk.
- Doctoral Dissertations