The ecology of competition: A theory of risk–reward environments in adaptive decision making

In many choice environments, risks and rewards—or probabilities and payoffs—seem tightly coupled such that high payoffs only occur with low probabilities. An adaptive mind can exploit this association by, for instance, using a potential reward’s size to infer the probability of obtaining it. However, a mind can only adapt to and exploit an environmental structure if it is ecologically reliable, that is if it is frequent and recurrent. We develop the competitive risk–reward ecology theory (CET) that establishes how the ecology of competition can make the association of high rewards with low probabilities ubiquitous. This association occurs because of what is known as the ideal free distribution (IFD) principle. The IFD states that competitors in a landscape of resource patches distribute themselves proportionally to the gross total amount of resources in the patches. CET shows how this principle implies a risk–reward structure: an inverse relationship between probabilities and payoffs. It also identifies boundary conditions for the risk–reward structure, including heterogeneity of resources, computational limits of competitors, and scarcity of resources. Finally, a set of empirical studies (N = 1,255) demonstrate that people’s beliefs map onto properties predicted by CET and change as a function of the environment. In sum, grounding people’s inferences in CET demonstrates how the behaviors of a boundedly rational mind can be better predicted once accounts of the mind and the environment are fused. 

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Citation: Pleskac, T. J., Conradt, L., Leuker, C., & Hertwig, R. (2021). The ecology of competition: A theory of risk–reward environments in adaptive decision making. Psychological Review, 128(2), 315–335.